Monthly Economic Update November

In this month’s recap: Inaction on a second American fiscal stimulus bill and a rise in global COVID-19 cases put pressure on stock prices in October.

U.S. Markets

Inaction on a second American fiscal stimulus bill and a rise in global COVID-19 cases put pressure on stock prices in October.

The Dow Jones Industrial Average, which has lagged much of the year, dropped 4.61 percent. The Standard & Poor’s 500 Index lost 2.77 percent and the Nasdaq Composite slipped 2.29 percent.1

All About Stimulus

The perceived progress by lawmakers to pass a new fiscal stimulus bill continued to move markets. When negotiations appeared to be on track, stocks moved higher but retreated as talks stalled.

Investor optimism regarding a second stimulus bill was highest at the start of the month, igniting strong gains as October got underway. Market sentiment was further buoyed by news of advances in COVID-19 treatments and a growing conviction that November’s election may be less contested than initially feared.

COVID’s Influence

As the month wore on, market optimism waned as the window to pass a stimulus bill closed. As hopes for a fiscal stimulus faded, an increase in new COVID-19 cases in the U.S. and Europe continued to sour market sentiment. This caused many investors to contemplate what a second coronavirus wave might do to the economic recovery.

Strong Earnings

Amid the attention the stimulus talks and COVID cases garnered, earnings season also began last month. By October 30th, with 64 percent of the S&P 500 companies having reported earnings, 86 percent had performed above Wall Street estimates and above the five-year average of 73 percent.2

These strong earnings results had little effect on a market overwhelmed by large-scale issues. Selling accelerated in the final week of trading with no movement on the fiscal stimulus bill, a bump up in COVID-related hospitalizations, and a reinstatement of partial lockdowns in Germany and France. 

Sector Scorecard Pressure

Utilities (+5.05 percent) was the only sector to post a gain in October. Communication Services (-0.34 percent), Consumer Discretionary (-2.73 percent), Consumer Staples (-2.87 percent), Energy (-4.11 percent), Financials (-0.87 percent), Health Care (-3.62 percent), Industrials (-1.44 percent), Materials (-0.72 percent), Real Estate (-3.18 percent), and Technology (-5.00 percent) closed lower.3

What Investors May Be Talking About in November  

The U.S. election will take center stage this month, with the critical concern being whether the election results will be clear and decisive.

Should President Trump remain in office, investors may expect him to follow similar policy initiatives during a second term. If former Vice President Biden is elected, investors will be listening closely to public statements and potential cabinet appointments to gain insight into his policy priorities.

Regardless of who is elected, the markets are expected to look for signs of a new stimulus measure.­­­­­

World Markets

A resurgence in COVID-19 infections, new economic lockdowns, and the growing prospect of a hard Brexit sent the MSCI-EAFE Index tumbling by 4.06 percent in October.4

Countries at the epicenter of the coronavirus resurgence in Europe were especially hard hit, with losses in Germany (-9.44 percent), France (-4. percent), Italy (-6.90 percent), and the U.K. (-4.92 percent).5

Pacific Rim stocks performed better, as Australia picked up 1.92 percent, and Hong Kong added 2.76 percent.6

Indicators

  • Gross Domestic Product: The economy expanded at a 33.1 percent annual rate in the third quarter, recouping about two-thirds of the pandemic-induced contraction suffered earlier in the year.7
  • Employment: Nonfarm payrolls grew by 661,000 in September. Hiring was slightly below expectations, but it was enough to drop the unemployment rate to 7.9 percent, down from the previous month’s 8.4 percent.8
  • Retail Sales: Consumer spending rose 1.9 percent, led by a 3.6 percent jump in motor vehicle sales. It was the fifth consecutive month of higher retail sales.9
  • Industrial Production: Industrial output fell 0.6 percent in September after four straight months of gains. Industrial production was 7.1 percent below its pre-pandemic February level.10
  • Housing: Housing starts rose 1.9 percent, as single-family home starts outweighed a decline in the more volatile multi-family segment.11
  • Existing home sales increased by 9.4 percent. Tight inventories drove the median home price higher to $311,800, a 14.8 percent jump from September 2019.12
  • After four straight months of increases, sales of new homes fell by 3.5 percent.13
  • Consumer Price Index: The cost of consumer goods rose by 0.2 percent in September, with a 6.7 percent jump in used cars and trucks. Additionally, inflation remained low, recording a 12-month increase of 1.4 percent.14
  • Durable Goods Orders:  Orders for long-lasting goods rose 1.9 percent in September, the fifth consecutive month of increasing orders. Orders for nondefense capital goods, a proxy for business investment, went up by 1 percent.15

The Fed

The minutes from September’s Federal Open Market Committee meeting reflected a Federal Reserve highly focused on the economy’s current state. Members expressed concerns about the lack of additional fiscal stimulus, and some suggested this stimulus gap could derail a full economic recovery.

Members supported providing forward guidance on the federal funds rate, which has a current target rate of between 0.00 and 0.25 percent. They also supported the new Federal Open Market Committee language, indicating inflation would have to average above 2 percent for a period of time before adjusting short-term rates would be considered.16

MARKET INDEXY-T-D CHANGEOctober 2020
DJIA-7.14-4.61%
NASDAQ21.61%-2.29%
S&P 5001.21%-2.77%
 
BOND YIELDY-T-DOctober 2020
10 YR TREASURY-1.06%0.86%

Sources: Yahoo Finance, October 31, 2020

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year Treasury real yield = projected return on investment, expressed as a percentage, on the U.S. government’s 10-year bond.

Know someone who could use information like this?
Please feel free to send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)

Axiom Financial Strategies Group, LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Information about Axiom Financial Strategies Group, LLC can be found by visiting www.adviserinfo.sec.gov and searching by the adviser’s name. This is prepared for informational purposes only. It does not address specific investment objectives. Information in these materials are from sources Axiom Financial Strategies Group, LLC deems reliable, however we do not attest to their accuracy.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and
not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy.

The MSCI EAFE Index is a  stock market index  that is designed to measure the equity market performance of developed markets  outside of the U.S. & Canada. It is maintained by  MSCI Inc. , [1]  a provider of investment decision support tools; the
EAFE acronym stands for Europe, Australasia and Far East. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

CITATIONS:

1. The Wall Street Journal, October 31, 2020

2. FactSet Research, October 30, 2020

3. FactSet Research, October 31, 2020

4. MSCI.com, October 31, 2020

5. MSCI.com, October 31, 2020

6. MSCI.com, October 31, 2020

7. The Wall Street Journal, October 29, 2020

8. The Wall Street Journal, October 2, 2020

9. The Wall Street Journal, October 16, 2020

10. The Wall Street Journal, October 16, 2020

11. CNBC.com, October 20, 2020

12. CNBC.com, October 22, 2020

13. Reuters.com, October 26, 2020

14. Reuters.com, October 13, 2020

15. The Wall Street Journal, October 27, 2020

16. CNBC.com, October 7, 2020

Scroll to Top