The market had one of its best weeks in the last few months, and as the case has been recently, it was an interesting ride to get there. We will also be covering both sides of the unemployment data, more information on the progress of stimulus talks and a few articles that go a bit deeper on the issues we are focused on right now.
Here are the top three things we are covering this week’s blog:
The Market
The S&P was up 3.84% on its best week since August. We had the market jump on Monday with news that President Trump would be leaving the hospital earlier than expected, followed on Tuesday by Trump announcing that no new stimulus deal would happen before the elections, causing a massive selloff into the close. This did not last long as by later that night Trump was Tweeting that he would be willing to do one off parts of a stimulus deal followed by continued negotiations through the week that led the market steadily up. The consensus right now seems to be that a big deal is still the most likely outcome in the next few weeks.
Economic Data
New claims were virtually flat last week and came in at 840,000, which was higher than expected. After seeing a positive trend over the summer, the recovery in new claims continues to lose steam. The level of pandemic claims fell slightly to 464,000, bringing the total initial claims to just over 1.3 million. We will be watching carefully to see if this number ticks higher with the recent increase in COVID cases as well as what will happen as State, County and City budgets are finalized in the next couple of months and the layoffs of white collar workers that could be the result of massive budget gaps they are expecting. We have seen indicators that those making over $100k have seen a recent uptick in their expectations of income loss in the next 4 weeks as well as a large drop in their Comfort level.
Continuing claims fell to 10.976 million. This represented a drop of more than one million over the previous reading and the fourth straight week of decreasing claims. The primary driver on this may be that many state programs that drive this number have a 26-week maximum period for claims. We are not hitting that mark so those that were unemployed at the beginning of the COVID crisis in March/April might be forced off of the state programs which will make the continuing claim number look better than it is in reality.
Total Claims for Unemployment from all programs came in at 25.5 million. Overall, this was a positive sign with total unemployment falling over one million. Unfortunately, there are still many concerning factors ahead that may have an impact on the employment recovery and some of these improvements could simply be from those that are leaving the workforce due to a lack of confidence that there will be an opportunity for them in the near future.
Stimulus
Stimulus remained the major headline throughout last week with many investors glued to Twitter for any breaking news. Early on Tuesday Fed Chairman Powell showed his support for a stimulus bill and claimed, “the risks of overdoing it seem, for now, to be smaller.” Fast forward to at 2:48am Est, the market was up roughly 2.5% on the week and surging higher. This would soon change as a tweet from the President calling off stimulus talks until after the election sent a shockwave through the markets.
Within minutes the implications of this action became evident. By the end of trading on Tuesday the market had fallen nearly 2% from the time of the initial tweet.
With market sentiment suddenly turning bearish, President Trump decided to change his decision. On Tuesday evening he tweeted his support for direct $1,200 checks and advocated for airline aid.
While no major bi-partisan progress has been made since then, the President continues to tweet positive rumors on a package being passed soon. As a result, the market has been on a tear back to all-time highs, an unconceivable thought in mid-September. With less than a month until the election, the President has clear motivations to strengthen the market and it appears the best way to do so is by passing a large stimulus package. A tweet on Friday morning indicates that he would be in favor of a sizeable bill.
On Friday morning the White House released a $1.8 trillion bill ahead of a meeting between Speak Pelosi and Treasury Secretary Mnuchin[1].
One roadblock standing in the way of a large stimulus is Senate Majority Leader Mitch McConnell. While the President was tweeting encouraging statements on Friday, McConnell reaffirmed his stance that no stimulus will be passed before election day. Meaning that even if a bipartisan bill is agreed upon by the White House and Democrats, it likely would not make it through the Republican controlled Senate[2].
One other longer-term part of this story that needs to be considered is whether the stimulus will be enough to help the economy get back to positive growth. While these funds may be critical to allow those most impacted to pay their bills, is the ever mounting levels of debt creating a scenario that makes it harder to get the economy growing at more historical levels that lead to meaningful job creation and economic mobility[3]?
While the market has been flying high, Small Business Revenue is still down over 20% from January and over 20% of small business are no longer open so there is a clear divergence from the liquidity that has been fueling the stock market and what is happening on the ground on Main Street. As I have said before, the market is not the economy and the market can keep going up even if the economic data does not currently support it and we are saw that last week.
Articles of Interest
Volatility from Stimulus – After months of deliberation Congress remains far apart on a second stimulus package. With so many political figures disagreeing on what will come next, the market has struggled to find a storyline to follow. Check out this article to read more on the increased volatility that has come from the multitude of differing views.
Tax Implications of Biden Victory – With Joe Biden currently ahead by a sizeable margin in the most recent polls, it is important to be educated on the tax plan he has presented. Check out this article to see how your tax bracket may be affected.
White House Stimulus Plan – Mid morning Friday the White House presented a $1.8 trillion stimulus plan. Short afterward, President Trump claimed that he would be willing to pass an even larger package. Check out this article for the details of the plan and how Congress responded.
Social Media Post of the Week
This week we had the pleasure of welcoming Melissa Cournyer and her team to the Konvergent family. They bring decades of experience and immense talent that will help us better serve our clients. We are so excited to have them on board!
Don’t forget to follow us on your favorite Social Media Feeds!!
Non-Financial Story of the Week
This weekend I had the privilege of attending the 80th birthday celebration for a long-time client and friend. There were 4 generations of family at the event, many that I have gotten the pleasure of getting to know well over the last 10 years. While our clients hire us to help them solve problems and achieve their goals, it is very gratifying when those relationships become friendships over the years and to also know that the work we are doing now will have a major impact on the future generations as well.
Bottom Line
The market felt the effects of bipartisan support of a stimulus package and continued to show signs that we are in a narrative driven world right now and the stories and headlines are driving the markets. This week will be crucial for the markets for a variety of reason from more Stimulus talks to the first set of major earnings reports which will set the tone for what could be a critical earnings season and now just a few weeks away from the election. Expect to see continued volatility in the days and weeks ahead.
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 info@konvergentwealth.com or calling us at 253-236-7000.
[1] https://www.cnbc.com/2020/10/09/trump-raises-coronavirus-stimulus-offer-to-1point8-trillion-sources-say.html
[2] https://www.businessinsider.com/mitch-mcconnell-stimulus-package-unlikely-three-weeks-trump-economy-odds-2020-10
[3] https://alhambrapartners.com/2020/10/08/it-just-isnt-enough/