Week in Review: October 23, 2020

October 27, 2020

Recap & Commentary

US equity markets ended the week slightly lower as investors lost faith that Washington will enact additional stimulus before the election and daily coronavirus cases exceed 70k for the first time since July. Stimulus talks stalled again Thursday after House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin were able to agree on virus testing, tracing, and vaccine strategies but remained at odds over funding for state and local governments.

On Friday, Britain and Japan signed a trade agreement, marking the UK’s first post-Brexit trade deal. The deal will remove nearly all tariffs on British exports to Japan and in return, will waive all British tariffs on Japanese cars by 2026.

As of Saturday, the CDC had reported nearly 225k coronavirus-related deaths in the United States. Gilead Science’s antiviral drug remdesivir was approved by the FDA this week as the first COVID-19 treatment. The approval followed the release of a report in the New England Journal of Medicine that showed faster recovery times than previously recorded in adults with moderate to severe cases of coronavirus.

Through Friday, 27% of S&P 500 companies had reported third quarter earnings, with 84% beating their consensus estimate. In aggregate, the companies that have reported so far have beat earnings expectations by 17.2%.  Currently, third quarter earnings are expected to contract 16.5%.

Economic Bullet Points

A relatively light week for economic news was headlined by housing data that saw continued gains for the sector. After pulling back in August, housing starts reaccelerated 1.9% in September, to an annualized pace of 1.42M.  Single family starts led the way, rising 8.5% while multi-family starts declined 16%.  Building permits, an indicator of future activity, rose 5%, to an annualized pace of 1.55M, led by a nearly 8% increase in single-family permits.

Existing home sales, increased 9.4% in September, to an annualized rate of 6.54M, the highest level in 14 years. Compared to September 2019, existing home sales increased 21%.  Historically low interest rates, a desire to live in less crowed areas due to the coronavirus pandemic, and a growing number of millennials entering their prime home buying years all helped drive September’s gains.

Initial jobless claims for the week registered at 787K.  That was well below the expected 860K, and the first sub-800K reading since the outbreak of the coronavirus back in March. Continuing claims continued to improve as well, falling by just over 1M to 8.4M, far better than the expected 9.5M.

Preliminary PMI data showed that overall economic activity continued to increase in March, led by the services sector, as manufacturing was effectively unchanged.  The combined reading of 55.5 signaled the fastest pace of economic growth since February 2019.

Of Note

ConocoPhillips announced plans to purchase rival shale company Concho Resources for $9.7B, in an all-stock transaction. The transaction would mark the largest US oil deal since the onset of the coronavirus pandemic.

Market Indices Week of 10/23

S&P 500-0.5%
Small Caps0.4%
Intl. Developed0.1%
Intl. Emerging1.1%
Commodities0.3%
U.S. Bond Market-0.4%
10-Year Treas. Yield0.84%
US Dollar-1.0%
WTI Oil ($/bl)$40
Gold ($/oz)$1,901

The Week Ahead

  • New Home Sales
  • Pending Home Sales
  • Case Shiller HPI
  • 3Q GDP
  • Durable Goods Orders
  • Consumer Confidence
  • Initial Jobless Claims
  • PCE Inflation

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