ND&S Weekly Commentary 10.05.20 – President & First Lady Test Positive to Covid-19

October 5, 2020

The big story of the week was President Trump and First Lady tested positive for Covid-19. The news only added to the uncertainty and turmoil around the election. September’s job growth was by far the lowest since the recovery from last March. A $2.2 trillion Democratic stimulus plan was passed by the House on Thursday evening in a 214-207 vote. Senate Majority Leader Mitch McConnell has opposed the plan and hopefully more negotiations will follow.

For such a distressful week, the financial markets performed surprisingly well. The Dow Jones Industrials rose 1.9%, the S&P 500 and the Nasdaq each gained 1.5%, and small companies, as measured by the Russell 2000, gained 4.4%. Foreign markets had similar gains as developed equities (EAFE) returned 1.6% and emerging equities (EM) were up 2.2%. The yield on the 10YR U.S. Treasury rose slightly to 0.70% from 0.66% the previous week. Gold prices closed at $1,903/oz. which was up over 2% on the week.

The U.S. economy added 661,000 jobs in September, missing estimates of 800,000 new jobs. However, the unemployment rate came in better than expectations improving to 7.9% from 8.4% in August. The labor force participation rate decreased 0.3% which serves as a sign people are leaving the labor force. Personal income decreased 2.7% in August slightly missing estimates as pandemic related assistance programs slowed down. Lawmakers are still struggling to reach an agreement for injecting more fiscal stimulus into the economy. Airlines, hospitality companies and banks continue to announce furloughs and job cuts. On the positive side, consumer confidence remained strong followed by a decent ISM manufacturing PMI release.

U.S. stock valuations remain historically high with a forward price-to-earnings (P/E) multiple for the S&P 500 at 23x. Technology and consumer discretionary companies have led the way for markets in 2020 while more cyclical companies have been struggling. Energy companies have really been hurt by sluggish global oil demand and concerns about a new stimulus package that has sent crude oil prices down below $38.00 per barrel.

There will be a few economic data releases to keep an eye on this week. On Monday the ISM services index will be reported, the JOLTS job openings on Tuesday, and on Wednesday, the minutes of the September Federal Reserve meeting.

We hope and pray for the president and first lady and all those affected by the coronavirus a speedy and full recovery. We remain a bit cautious about financial markets near-term as focus should remain on asset allocation, valuations and high-quality assets.

“Although the world is full of suffering, it’s full of also overcoming it.” – Helen Keller