A culmination of concerning COVID lockdown headlines, poor earnings reports, and election uncertainty gave way to the worst week for the market in over 6 months. Even positive economic data, highlighted by a historical GDP reading, was not enough to overcome the effects of stimulus negotiations failing. Find all of this plus additional insight into the storylines moving the market in this week’s Konvergent Wealth Partners Market Update Blog.
Here are the top three things we’re covering this week’s blog:
The S&P was down -6.03% as wall street experienced its worst week since March. After two weeks of relatively flat returns, the market finally capitulated in the final full week before the election. Leading the headlines was a new high in U.S. COVID cases, lockdown announcements in Europe, and increasing uncertainty surrounding the election. Additionally, the release of the Q3 GDP growth number and adjournment of the Senate before a stimulus deal could be passed brought a surge of volatility to the market. Even as many large cap companies reported strong earnings results, their disappointing fourth quarter guidance overshadowed any positive market reaction.
New claims decreased 40,000 to 751,000. The initial spike in these claims came in mid-March as COVID cases began to grow exponentially. With COVID cases picking up speed again, the continued reduction in this number is a positive sign. Pandemic unemployment claims rose slightly to 359,000. Overall, this represented a small decrease in total new claims to 1.11 million.
Continuing claims fell for the fifth straight week to a new pandemic low of 7.756 million. This was a drop of nearly 700,000 and another positive sign for the job market.
Total Claims for Unemployment from all programs came in at 22.65 million. Following a similar trend as the last several weeks, the main drive in the drop was the 921,000 reduction in regular state claims. The only increase came in pandemic unemployment assistance and emergency claims, which gained more than 500,000 individuals.
This week brought the long anticipated Q3 GDP report. Coming off the worst quarter in history the economy grew 33.1% in Q3. This was the largest historical increase and substantially beat analyst expectations of 31%
While on paper this massive growth appears to be a great sign of a V-shaped recovery, it is critical to remember that this is comparing the economic data of only the past two quarters. The chart below shows that despite the large bounce back, GDP remains well below where it began 2020.
Personal spending beat expectations and gained some steam in September coming in at 1.4%. This was a good sign as concerns continue to arise around potential COVID lockdowns.
Personal income also increased in September, jumping past expectations to 0.9%.
Consumer sentiment surpassed preliminary estimates and came in at 81.8. This will be a number to watch closely with COVID cases on the rise and election anticipation gaining intensity.
We are now one day away from the election and tensions are at an all-time high. With both candidates doing what they can to gain a last-minute edge, let us look at the headlines creating the biggest stir in the market.
COVID cases continue to rise in the U.S. and abroad. On Thursday, October 29th cases hit a new high of 90,728. This was a 42% increase over the amount reported 14 days previous. With a strong divide between candidates on this issue, the election will be a key factor in determining if a second lockdown will occur.
Speaking of lockdowns, the surge in COVID cases across Europe prompted French President Emmanuel Macron to announce a second lockdown. Likewise, German Chancellor Angela Merkel placed her country under additional restrictions and a partial lockdown. Shortly after the news broke on Wednesday, markets around the globe fell heavily.
Also contributing to the recent market selling is the news that despite months of negotiations there will not be a stimulus package prior to the election. After COVID cases first spiked in March, it was Congress passing the first stimulus package that drove the market higher for months. When weakness hit the market in September, investors looked to the Federal Reserve and Congress to pass another bill. But after lengthy negotiations, reality has begun to set in that their will be no imminent package. With the likelihood of a deal minimal heading into the week, all hopes were essentially squashed on Monday with the Senate adjourning after the confirmation of Justice Amy Coney Barrett.
Articles of Interest
European Lockdowns – On Wednesday, both France and Germany instituted lockdowns as a method for controlling the COVID-19 pandemic. While the leaders of the respective countries claimed this was a necessary step, European Central Bank policymakers expressed concerns over shutting down the economy. Check out this article for the specifics of what is being discussed in Europe.
Big Tech Earnings – Four major tech companies (Apple, Amazon, Google, Facebook) all reported earnings on Thursday evening. While the initial reaction was positive, disappointing future guidance from these companies caused the tech heavy Nasdaq to sink on Friday. Check out this article for additional insight into the worrying reports.
Flashback to August 26th, the stock market was rolling, and it seemed like nothing could slow it down. Two months later and the market has steadily fallen, COVID cases are on the rise, and a second stimulus package appears far out. Check out this article from strategist Jeffrey Snider on how the headlines may not be telling the entire story of why the market has been struggling recently.
Social Media Post of the Week
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Non-Financial Story of the Week
In spite of all the challenges with COVID we were still able to pull off a fun and safe Halloween Trick or Treating experience with my daughters. There were still a few houses in the neighborhood that went all out and the girls had a blast. My oldest daughter was also inspired to back her own cake and did the entire process from scratch, including the cake batter and butter cream and also rolled out and covered the cake in fondant before decorating in as a skull!
We have been concerned for months that a week like this could happen as the market was essentially being propped by stimulus rumors. The road ahead is unknown and has potential for many different market paths. With volatility in the market remaining at a dangerously high level, we will continue to maintain a cautious outlook.
If you have any questions about any of the information in this week’s blog or what you should be doing right now with your personal and business planning, do not hesitate to reach out to us by sending an email to firstname.lastname@example.org or calling us at 253-236-7000.