US and International Equities:
US stocks staged one of their biggest election week rallies ever, with all major markets finishing up over 5% this week. Small caps had a particularly big week, with the Russell 2000 up over 8%. Investors appear to be pricing in increasing odds of a divided government, which may take major tax increases and some regulatory risk off the table. However, this could be partly offset by a potential drawn-out battle for the White House.
The biggest sector winners this week were information technology, health care, materials, and communication services. All major sectors finished in the green. The overseas markets also had a positive week. Developed international stocks, as denoted by the MSCI EAFE, outperformed their emerging markets counterparts (MSCI EM).
Fixed Income, Currencies, and Commodities
Bonds, as represented by the Bloomberg Barclays US Aggregate, finished higher while most bond sectors also rebounded after last week’s malaise. The 10-year Treasury yield gave back last week’s gains as markets priced in less fiscal stimulus due to the likelihood that Republicans hold onto their Senate majority.
Commodities posted mixed results for the week. Oil and natural gas moved in completely opposite directions again this week, except this time, oil finished in the green whereas natural gas pulled back. Gold, silver, and copper all finished higher this week after losing ground in the prior week.
US and International Economic Data Recap
The Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) for October came in over 50, above September’s level and above Bloomberg consensus. The big headline number was driven by the strongest new orders growth since January 2004—up over 7 points to over 67—while production and employment also expanded. This robust manufacturing recovery can be seen as a positive indicator of near-term corporate profits.
Weekly jobless claims declined for the fourth straight week to 751,000; however, they were above the Bloomberg consensus forecast for 738,000 and the prior week was revised slightly higher. Continuing claims declined for the sixth straight week, though the pace of the improvement has leveled off some in recent weeks, suggesting momentum in the labor market is waning (source: US Labor Department).
For the month of October, the US economy added 638,000 jobs in October according to the Bureau of Labor Statistics, which was well ahead of the Bloomberg survey estimates below 600,000 despite being depressed by a sizable job in government employment. The unemployment rate also declined, falling an entire percent, from 7.9% to 6.9%.
During Thursday’s Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) kept its policy rate at 0–0.25% and maintained its current rate of bond purchases. In his post-meeting press conference, Fed Chair Jerome Powell emphasized that the Fed has not exhausted its policy tools and highlighted the importance of Congress passing additional fiscal policy measures to complement the Fed’s monetary stance.
Looking Ahead
Next week, the following economic data is slated to be released:
- On Tuesday, we get data from October’s National Federation of Independent Business’s (NFIB) Small Business Index as well as from the US Bureau of Labor Statistics JOLTS Job Openings in September.
- Thursday provides investors another weekly initial unemployment claims report. In addition, we get data about last month’s Consumer Price Index (CPI), Treasury Budget, along with data on hourly earnings and the average workweek.
- We end the week with last month’s Producer Price Index along with November’s preliminary Michigan sentiment.
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