ND&S Weekly Commentary 10.26.20 – Markets Take a Breather

October 26, 2020

U.S. equity markets pulled back last week as investors weight the uncertainties surrounding the election and rising Covid-19 infections around the globe. Additionally, a lack of fresh stimulus will likely further weigh on the economy in the short-term.

For this past week, the S&P 500 declined 0.51% while the DJIA gave back 0.90%. The tech-heavy NASDAQ finished the week -1.06% as money moved out of more growth areas. Small company stocks, represented by the Russell 2000, again bucked the trend as the index closed higher by 0.42% for the week. International equity markets also finished in the green as the MSCI EAFE and emerging markets (MSCI EM) added on 0.11% and 1.11%, respectively. Bonds took it on the chin for the week as the Bloomberg/Barclays Aggregate, finished the week down 0.42%. As a result, the 10 YR US Treasury closed at a yield of 0.85% (up 9 bps from the previous week’s closing yield of 0.76%). Gold prices closed at $1,904/oz. – up fractionally on the week. Oil (WTI) moved lower to close at $39.88 – down 2.5% on the week.

Economic news released last week was mixed. The U.S. Census Bureau reported that housing starts increase 1.9% to a seasonally adjusted rate of 1.415 missing estimates for September. Conversely, existing home sales jumped 9.4% for the month which far outpaced estimates. Overall, existing home sales are up 21% from the same time last year reflecting the strength of the housing market. Weekly jobless claims were 787,000, marking a 55,000 improvement from the week prior. On Friday, the IHS Markit Flash U.S. Composite PMI registered a reading of 55.5 for October. The “flash” reading is a preview to the official release with any reading over 50 representing expansion. The week ahead will have reports on personal income and expenditure, durable goods orders, new home sales, and the initial release of 3Q20 real GDP.

Third quarter earnings season is in full swing this week with Apple, Microsoft, Mastercard, Pfizer, and Facebook among the many scheduled to report. Although it is early, thus far, results have generally surprised to the upside with 83% beating on EPS and 74% on revenues according to data from FactSet. Much of the market reaction to releases will be the result of guidance from the respective companies.

We are thankfully in the final stretch of the election season. The hyper partisanship will likely lead to a record turnout at the polls. The election aside, the volatility in equity markets will likely increase this week due to spikes in Covid-19 globally and the busy week for company results and updates. As always, investor focus should remain on long-term goals.

“Out of difficulties grow miracles.” – Jean de la Bruyere