Market Perspective for October 4, 2020

At the close of this week, the markets had plenty of political developments to send them into a volatile wrap-up on trading. The president’s COVID-19 diagnosis was perhaps the most significant event of the trading week, but it was certainly not the only major development. Promising signs of continued progress with stimulus package negotiations fueled investors’ moderately positive outlook on the markets to buoy against immediate declines after the President’s health concerns.

The S&P 500 ended a four-week losing stretch by closing out the week with a 1.51 percent gain. The Nasdaq gained 1.48 percent on the week, which was its second week in a row of gains. The Dow was up 1.87 on the week. The Russell 2000 was the top-performing benchmark, gaining 4.4 percent.

SPDR Financials (XLF) increased 3.36 percent this week, SPDR Utilities (XLU) 3.34 percent and SPDR Consumer Discretionary (XLY) 3.02 percent.

Only one sector, energy, rounded out the trading week lower than where it opened.

President Trump announced that he and First Lady Melania Trump had tested positive for COVID-19 early Thursday morning. Although it was reported that he has only experienced “mild” symptoms, his admission to Walter Reed National Military Medical Center sent markets into a dive as investors grappled with the uncertainty of the president’s health situation and the impact on the upcoming election.

Initial concern over the potential dip in stocks following the president’s COVID-19 diagnosis was tempered by positive sentiments regarding negotiations for an additional stimulus package. On Thursday evening, Treasury Secretary Steven Mnuchin revealed that the final stimulus deal would include significant aid to state and local governments, which was a reversal from the White House’s initial stance to exclude such aid packages. Mentions of increased funding to support areas of the country that have been hit particularly hard by the pandemic-related shutdowns and reduction in economic activity are a promising indication that Republicans and Democrats are inching closer together on ironing out final details.

In other hopeful news, House Speaker Nancy Pelosi announced that the stimulus package would include aid for struggling airlines to help curb the need for further furloughs or layoffs. Following Pelosi’s announcement, Delta Air Lines stocks went up about 1.8 percent. Likewise, United and American experienced a 2 percent rise in stock values. This comes after United Airlines announced earlier this week that it intends to furlough about 13,000 employees without much-needed support from a stimulus package. American Airlines joined in announcing a potential 19,000 furloughs if no deal can be reached on additional stimulus aid.

On Friday it was revealed 661,000 jobs were added to the economy. The last labor report before the November election reflected a decline in the unemployment rate to 7.9 percent.

Initial claims for unemployment remained elevated above 800,000 last week, but most of the high unemployment is in a handful of tourism-dependent states led by Hawaii and Nevada, plus states such as California and New York that have strict lockdown policies. With investors keeping a close watch on the private sector’s job recovery, the prospect of an additional stimulus package will likely play a major role in how companies continue to add more jobs and hold off on layoffs.

Consumer sentiment was far stronger than anticipated according to the Conference Board. Its measure of consumer confidence rose the most in 17 years. The University of Michigan’s survey was also higher.

Pending home sales data out this week confirmed the housing market remains hot. August sales increased 8.8 percent, up from 5.9 percent in July.

 

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