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Week in Review: October 16, 2020

Recap & Commentary

US equity markets ended the week mostly flat as traders played it safe heading into the weekend on news of surging global coronavirus cases and with the election just weeks away. Stimulus talks continued as President Trump offered to exceed his $1.8T offer in a move to meet Democrats halfway as they seek a $2.2T package. Treasury yields sank as investors rotated into the asset class.

Abroad, Singapore and Hong Kong will open their borders to each other for the first time in seven months after the two governments agreed to a “travel bubble” where travelers between the financials hubs wouldn’t be subject to compulsory quarantines. The move sent local airline shares and flight prices soaring. OPEC+ will meet on Monday to assess whether they should change course and curb production as the global resurgence of coronavirus cases could once again threaten demand.

As of Saturday, the CDC had reported nearly 219k coronavirus-related deaths in the United States. New cases have once again reaccelerated, reaching their highest level since July. The US is averaging 55k new cases per day, a 60% increase since mid-September. Currently, 10 vaccines are in Phase 3 trials. At the current pace, whichever COVID-19 vaccine is approved will break a world record. Previously, the mumps vaccine developed in 1967, which took four years to approve, was the fastest-ever vaccine developed.

Economic Bullet Points

A busy week for economic data saw better-than-expected results for housing and the consumer, along with continued growth in manufacturing. However, the most notable release of the week, September’s employment report, provided more mixed signals.

Economic data for the week was mixed, reinforcing the current sentiment that overall economic growth is decelerating from the strong initial rebound experienced in 2Q20, to a slower, (more sustainable?) run rate.

Perhaps the most notable data point was retail sales, which rose 1.9% in September, significantly better than the expected 0.7% increase. However, the gain was not inconsistent with the nearly 16-point jump in consumer confidence in September, the largest monthly gain since 2003. Increasing consumer confidence is often viewed as a precursor to increased consumer spending.

Manufacturing data gave conflicting signals. At the national level, activity declined 0.3% in September, part of a broader and unexpected decline in overall industrial production, which fell 0.6%. The decline in industrial production, the first in five months, was below the expected 0.5% increase. Regional manufacturing data out of New York and Philadelphia continued to expand, with notable improvements in new orders and the length of the average work week.

Consumer inflation (CPI) remains well contained with headline and core CPI both registering a 0.2% monthly gain in September, while rising 1.4% and 1.7% respectively from a year ago.

Initial jobless claims rose nearly 55K to 898K, above the expected 825K and the highest level since late August. The trend in continuing jobless claims was more positive, with claims falling by nearly 1.2M to just over 10M.

Of Note

The US posted its largest ever annual fiscal deficit. For the 2020 fiscal year ending September 30, the annual deficit was 3.1T, three times larger than the prior fiscal year, and relative to the economy, the largest since World War II. The US’s outstanding debt now exceeds 100% of its annual GDP.

Market Indices Week of 10/16

S&P 5000.2%
Small Caps-0.2%
Intl. Developed-1.5%
Intl. Emerging0.1%
Commodities0.2%
U.S. Bond Market0.3%
10-Year Treas. Yield0.75%
US Dollar0.7%
WTI Oil ($/bl)$41
Gold ($/oz)$1,900

The Week Ahead

  • Housing Starts
  • Existing Home Sales
  • Initial Jobless Claims
  • Preliminary PMI

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