Hello, this is Claire Rubin, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity benchmarks rallied last week, leading the S&P 500 Index to its best weekly performance since April, following a pullback in the prior week. The S&P 500 rose 7.4% in total return for the week, while the tech-heavy NASDAQ Composite added 9.1% and the blue-chip Dow Jones Industrial Average increased 6.9%.
Election week in the United States was accompanied by a risk-on tone in markets, even as the presidential results remained undetermined when markets closed on Friday. The Associated Press and major television networks called the presidential race in favor of former Vice President Joe Biden on Saturday after he was projected to win the state of Pennsylvania, pushing him over the 270 electoral votes needed to win. Vice President-elect Kamala Harris will be the first woman, first Black woman and first Indian-American woman to serve in the role. As the weekend concluded, President Donald Trump had not yet conceded. His campaign has filed a series of lawsuits challenging the election outcome in several states.
Results for Congressional races are not yet certain but suggest Democrats will retain the majority in the House of Representatives and Republicans will retain the majority in the Senate. Importantly, Georgia may be headed for run-off Senate races in early January that could determine the balance of power.
The narrative among Wall Street analysts late last week suggested that a split government would be beneficial for stocks, adding to tailwinds for risk assets. Vaccine optimism, better-than-expected corporate earnings results, strong economic releases and a commitment to continued support from the Federal Reserve also helped the rally.
The economic calendar was eventful and painted a largely positive view of the U.S. economy. The Institute for Supply Management's Manufacturing Purchasing Managers' Index expanded at the fastest pace in over two years in October, beating consensus estimates and led by strong orders growth. The trade deficit narrowed for the first time in three months in September, as exports increased and growth in imports slowed. Still, overall transactions remained well below pre-pandemic levels. The labor market strengthened last month, with nonfarm payrolls increasing more than anticipated and the unemployment rate dropping by a full percentage point to 6.9%, also better than expected. The labor force participation rate rose more than forecast. One less encouraging data point was the number of long-term unemployed—those that have been unemployed for 27 weeks or more—which increased to the highest level since early 2014.
As anticipated, Federal Reserve officials left monetary policy unchanged at its November meeting, holding interest rates near zero and making no change to asset purchases in a unanimous vote. Fed Chair Jerome Powell said at his press conference that the outlook remained “extraordinarily uncertain” and rising COVID-19 infection rates are “particularly concerning.”
COVID-19 case growth continued to rise to record levels in the United States last week, hitting a record high for new daily cases three times. Hospitalizations also rose to the highest in three months.
In the week ahead, investor focus will likely pivot back to economic stimulus negotiations as COVID-19 cases rise and states re-impose restrictions to help slow the spread. The results of the presidential and congressional elections in the U.S. remain under the microscope in the days and weeks ahead, especially as the Trump campaign pursues lawsuits.
On the economic calendar, we'll be watching the small business optimism index from the National Federation of Independent Business, which has rebounded to near pre-pandemic levels in recent months. The Job Openings and Labor Turnover Survey, or JOLTS report, will shed more light on the strength of the labor market, though it is reported a month in arrears. We’ll also get the first few inflation releases for October with the consumer and producer price indexes.
As always, we’ll be watching and reporting back to you. Thank you.
