Stocks sharply higher on Election Day eve. Market participants appear to be looking past rising COVID-19 cases and election uncertainty this morning and finding buying opportunities after last week’s losses.
- The S&P 500 Index opened more than 1% higher.
- Strong global manufacturing survey data in Europe and China helped buoy sentiment.
- European markets were broadly higher in midday trading despite renewed COVID-19 restrictions.
- Asian markets were broadly higher led by Hong Kong and Japan.
Chinese economy continues to stand out. The pair of manufacturing purchasing managers’ surveys released over the weekend provided further evidence that China’s economy remains on solid ground. The broad Caixin manufacturing index rose to 53.6, the sixth straight month in expansion territory (above 50) and a nine-year high. The official Purchasing Managers’ Index (PMI) measure, at 51.4, slightly exceeded Bloomberg’s consensus forecast and finished in expansion territory for the eighth straight month.
Strong results, muted response. A very strong week of results has put third quarter S&P 500 earnings on track to fall just 9% year-over-year, more than 11 percentage points above September 30 estimates, while forward 12 months’ estimates impressively rose 1% during October. Stocks have failed to respond to strong results given the focus on COVID-19 and the election, though getting past the election could potentially help shift investors’ focus back to corporate fundamentals.
October in review.
- The S&P 500 fell 2.7%, the second consecutive month of declines.
- Value-style stocks (Russell 3000 Value Index) led growth (Russell 3000 Growth Index) and small caps (Russell 2000 Index) led large caps (S&P 500), both also two-month streaks.
- Utilities was the top performing sector, while technology was at the bottom of the sector rankings.
- The MSCI Emerging Market Index outpaced the S&P 500, but the MSCI EAFE Index of international developed equities underperformed.
- The Bloomberg Barclays US Aggregate Bond Index dropped 0.4%, its third consecutive month of losses.
Economic calendar this week. 126 S&P 500 companies are slated to report earnings. Also,
- Monday: October’s Institute for Supply Management (ISM) PMI
- Thursday: Federal Reserve’s policy announcement. No policy changes are anticipated.
- Friday: October employment report. Bloomberg consensus is 600,000 and unemployment rate of 7.7%.
Market Signals podcast moved to Nov. 4. Today’s Market Signals podcast has been moved to Wednesday, Nov. 4, to provide real-time market and economic analysis the day after the election. Look for this week’s Market Signals podcast and video the afternoon of Nov. 4.
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Technicals update. Last week the S&P 500 fell 5.5%, suffering its worst week since late March. Despite the drop, the index held above its September lows at 3209 and has not been below the 3200 level since July. 10-year Treasury yields were higher on the week and credit spreads were only marginally wider, signs that the weakness may be short-lived.
COVID-19 news. New COVID-19 cases in the United States approached the 100,000 mark over the weekend, though the trend in weekly increases downshifted from the mid-20s to the mid-teens (source: COVID Tracking Project). Hospitalizations thankfully have not yet followed the uptrend in cases. England has initiated a one-month national lockdown, setting up a potential double-dip recession and more stimulus from the Bank of England. In better news, Australia reported no new local cases Sunday for the first time since June.
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