A Vaccine on the Horizon
Market highlights: Week ending 16th October 2020
The major U.S. stock indexes climbed for the third week in a row, but at a far slower pace than in the previous two weeks, finishing the week up 0.2%. The S&P now sits just 1.5% below its previous record high following its 9% rally over the last three weeks.
Economic data was mixed this week. Retail sales figures surprised well to the upside, increasing by 1.9% to record a fifth straight month of increases, now sitting above pre-pandemic levels. In contrast, Jobless claims data remained stubbornly high. Recent progress has seen the unemployment rate fall dramatically since April, but a delay in fiscal stimulus has seen the progress stall and now begin to reverse since September. Manufacturing data also disappointed with Auto and Electronic production weakness resulting in a 0.6% fall in U.S. industrial production in September.
The political tit-for-tat around a U.S. fiscal stimulus package continued this week. House Speaker Nancy Pelosi remaining surprisingly optimistic that a deal can be struck despite the elusive nature of the agreement over recent weeks, stating on Saturday that an agreement was needed within 48 hours to get the package approved before Election Day.
On the medical front, Pfizer announced that it expects to reach a key milestone in its COVID-19 vaccine candidate testing in the third week of November, after which it plans to apply for Emergency Authorisation Use through the U.S. Food and Drug Administration.
The most recent equity market rally has the S&P up 9.4% and the technology-based NASDAQ composite Index up 31%. Not a bad return following one of the most uncertain periods in modern history.
U.S. Government 10 Year Bond yields fell this week following last week’s positive surge. U.S government debt prices were pushed higher as hopes for a fresh pandemic stimulus package before the November 3rd elections falter.
The U.S. Dollar reclaimed some lost ground against the Euro this week. The second wave of Covid-19 is now widespread across Europe. Rapidly rising coronavirus cases and new social distancing protocols have investors turning to the world’s reserve currency of choice for safety.
Oil prices held relatively steady this week despite the tighter measures being put in place globally to stop the spread of the coronavirus. The Continued strength of the Chinese economy and further supply constraints may function to offset the current reduction in demand elsewhere.
Just under a fifth of the S&P 500 will report earnings this week, with the sector disparity likely to continue. The short-term outlook remains ominous for the airline and energy industries. The likes of United Airlines and Halliburton already reported substantial losses over Q3, a trend that is likely to be reflected across the majority of companies within these sectors this quarter. In contrast, technology, consumer staples, and health care earnings are expected to increase for the most part, compared to 2019.
Until we see more substantial progress in combatting the virus, large-cap, tech-oriented industries remain the obvious choice.