ND&S Weekly Commentary 10.12.20 – Market Continues Rally

October 12, 2020

Markets bounced around last week on news of additional stimulus. On Monday, President Trump tweeted that he had instructed his representatives to stop negotiations until after the elections driving equity markets down. By week end, that appeared to have been a negotiating tactic as President Trump indicated that he would be amenable to a stimulus package totaling $1.8 trillion (still short of the Democrats’ request of $2.2 trillion). For the week, U.S. equity markets finished solidly up with the S&P 500, DJIA and NASDAQ up 3.9%, 3.3% and 4.6%, respectively. So far, the month of October has started on a strong note with 2 consecutive up weeks for equities. The strongest sectors last week were materials, energy and technology as stocks continued to broaden out. The weakest sectors were staples, communication services and real estate. International equities also advanced despite a “second wave” of Covid-19 cases in Europe. The MSCI EAFE index and emerging markets finished up 3.0% and 3.8% for the week.

It was a very light week in terms of economic releases. On Monday, the Institute of Supply Management (ISM) reported their non-manufacturing index increased to 57.8% for September, exceeding expectations. This week, look for reports on CPI/PPI, retail sales, industrial production and consumer sentiment. Also, 3rd quarter earnings season begins this week with reports from major banks. Investors will be looking to see if bank loan loss reserves taken earlier in the year are sufficient. Analysts expect companies in the S&P 500 to report a median per-share drop of 20% in earnings. However, analysts have actually grown more optimistic during the past three months raising estimates by 4.1%.

In fixed income markets, rates generally rose as the Fed has been indicating that it would let inflation run above 2% for an extended period of time. The yield on the 10 year U.S. Treasury note rose to 0.79% from 0.70% the week prior.

Look for volatility to continue as we approach the election. While it is important to monitor potential policies, there are many dynamics at play. So continue to stay diversified and rebalance as necessary.

“Kind words do not cost much. Yet they accomplish much.” – Blaise Pascal