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Week in Review: October 30, 2020

Recap & Commentary

Global equity markets posted their worst weekly decline since March, a rout punctuated by underwhelming tech earnings, new lockdowns in countries across the world, and the Senate adjourning until November 9 without reaching an agreement on stimulus. On Wednesday, the S&P 500 suffered its largest one-day decline since June and the VIX, a measure of the stock market’s expected volatility, hit its highest level since June. Treasury yields jumped after personal income and spending rose more than expected in September. Apples iPhone sales and Twitter’s user growth both missed estimates.

As of Saturday, the CDC had reported nearly 229k coronavirus-related deaths in the United States. This week, new US coronavirus cases exceeded 89k/day, a new record. In response, new lockdown restrictions were imposed in cities across the country, which will invariably have an impact on the economic recovery. Abroad, France, Germany, and Ireland, amongst others, also imposed strict lockdown measures in order to curb the spike heading into the winter months. In the UK, PM Boris Johnson announced a new four-week lockdown.

Through Friday, 64% of S&P 500 companies had reported third quarter earnings, with 86% beating their consensus estimate. In aggregate, the companies that have reported so far have beat earnings expectations by 19.3%. Currently, third quarter earnings are expected to contract 9.8%.

Economic Bullet Points

A very busy week for economic data was headlines by 3Q GDP which increased 33.1% following a 31.4% decline in the second quarter. Strength was broad based, with consumer and business spending rebounding 41% and 83%, respectively, after falling 33% and 47% in the second quarter. The rebound reflected states’ efforts to reopen their economies and the benefits of fiscal stimulus. Despite the improvement, growth remains considerably below where it began the year. To fully recover back to breakeven, 4Q GDP would need to increase 15%. The current consensus forecast is for 4% growth.

Housing took a breather in September, as both new home sales and pending home sales fell from August levels. Given the recent strength of the sector the slight pullback was not surprising. Compared to a year ago, new and pending home sales were up 32% and 20.5%, respectively.

Readings on the consumer’s view of the economy were mixed with consumer confidence slipping slightly in October, while consumer sentiment increased slightly. The general lack of direction suggests that consumers are taking a wait-and-see approach to the election and perhaps balancing a recent surge in coronavirus cases against generally positive economic data.

Initial jobless claims fell 40k, to 751k, the lowest reading since March, and better than the expected 775k. Continuing claims fell just over 700k to 7.76M, slightly higher than the expected 7.7M.

Of Note

The week was marked by several large technology M&A deals. Semiconductor company AMD announced plans to acquire chipmaker Xilinx in an all-stock deal valued at $35B, while semiconductor company Marvell announced it will acquire chipmaker Inphi for $10B.

Market Indices Week of 10/30

S&P 500-5.6%
Small Caps-6.2%
Intl. Developed-5.5%
Intl. Emerging-2.9%
Commodities-2.3%
U.S. Bond Market0.0%
10-Year Treas. Yield0.87%
US Dollar1.3%
WTI Oil ($/bl)$36
Gold ($/oz)$1,878

The Week Ahead

  • Oct. Employment Report
  • ISM Manufacturing
  • ISM Services
  • Factory Orders
  • PCE Inflation
  • Trade Balance
  • Initial Jobless Claims

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