ND&S Weekly Update: The Election – Here We Go!

November 2, 2020

Last week was a wake-up call for investors as Wall Street closed out its worst month since March. The market’s largest tech companies reported solid earnings but muted guidance, the election heated up and the resurgence in coronavirus infections continued in the U.S. and Europe (where lock-down restrictions are being implemented).

For the week, the DJIA closed down 6.47%, the S&P 500 declined 5.62%, and the tech-heavy NASDAQ shrunk 5.50%. Foreign markets also took it on the chin with Developed Markets (MSCI EAFE) dropping 5.51% and emerging markets (MSCI EM) slipping 2.89%. The technology sector slid 6.5% for the week. The price of oil also declined by 10.2% per barrel and gold was off by 1.3%.

There has been upward pressure on interest rates with the yield curve continuing to steepen on the intermediate and long-end. The yield on the 10 Yr. U.S. Treasury ticked higher to 0.88% from 0.86% the week prior.

Despite the U.S. economy growing at a record pace, increasing 7.4% in the third quarter and at a 33% annual rate, the concerns over the elections and potentially overvalued large tech companies took hold. In other economic releases, durable goods orders increased 1.9% in September beating estimates, Core PCE (personal consumption expenditures) advanced 3.5% quarter-over-quarter, and pending home sales contracted 2.2% in September missing estimates.

The earning season so far has been solid with 60% of companies in the S&P500 having reported, with 80% of them beating their estimates. Though earnings are off 12.55% from a year ago, they are much better than predicted and overall guidance is improving. Still all eyes are on revenues and investors are willing to pay up for companies with sustainable sales growth.

There is no question that our economy needs another major stimulus program. Congressional leaders failed to agree on roughly a $2 trillion stimulus package which covered enhanced unemployment benefits, more government backed loans and stimulus for households.

The results of Tuesday’s election will determine the political direction of the U.S. and its effect on our economy and global financial markets. We strongly suggest that investors maintain a well-diversified portfolio with a slight conservative bias favoring dividend income and growth.

“George Washington is the only President who didn’t blame the previous administration for his troubles.” – Author Unknown