This Week's Market Moves | October 5, 2020

The S&P 500 Index finished the week 1.5% higher, as renewed stimulus talks between House Democrats and Senate Republicans overshadowed the news that President Trump and the First Lady tested positive for the coronavirus. Here are some other insights on the markets and economy from this past week:

Despite a late-session rally into the close of business on Friday, the S&P 500 Index finished the week down 0.6% as political uncertainty, fading hopes of a new stimulus bill, and a sharp uptick in the number of coronavirus cases weighed on sentiment. The recent market correction has been broad based, with all eleven sectors of the S&P 500 declining this month.

Treasury market volatility is virtually non-existent these days. Despite some modest movements, U.S. government bond yields have continued to trade sideways since the equity markets bottomed earlier this year. The compressed level of yields and lack of any meaningful movement has seen the ICE Bank of America MOVE Index, which tracks U.S. interest rate volatility, drop to its lowest level in history this past week.

The number of Americans filing for first time benefits dropped to 837,000 last week. Those currently collecting benefits through State programs fell to 11.8 million. However, this past week’s data did not include updated claims filings from California, as the state paused processing new applications for benefits to deal with a two-week backlog of filings. While the steady improvement is encouraging, the claims data remains well above the pre-pandemic levels.

The final labor market report before the Presidential election showed that job growth cooled in September, with the economy adding just 661,000 new jobs. This is a sharp drop from the 1.5 million jobs added last month. The latest report shows that approximately half of the jobs lost due to the pandemic have now been recovered. However, the unemployment rate unexpectedly fell to 7.9% from 8.4%. This is largely due to a drop in the labor force participation rate, which suggests that Americans may be giving up looking for work during the pandemic.

The Conference Board’s Consumer Confidence Index rebounded sharply in September as Americans grew more upbeat about the economy and their employment prospects. This was the largest gain in the Index since April of 2003. The rebound should bode well for the recovery, as consumers are more likely to spend when they are optimistic about where the economy is heading. While the news is encouraging, it is worth noting that the Index remains far below the levels that prevailed before the pandemic swept across the nation earlier this year, and Americans’ incomes no longer have a boost from the federal unemployment benefits.

The final estimate of 2nd quarter growth was revised to show a contraction of 31.4% at an annualized rate. This reading was slightly better than the previous estimate of a decline of 31.7%. Despite the upward revision, the quarterly slide represents the deepest decline in economic activity in over 70 years. Prior to this report, the largest drop in growth in a single quarter was the 10% decline in the 1st quarter of 1958.

The lingering impact of the coronavirus pandemic is taking its toll on American businesses. Companies, both big and small, are stepping up their efforts to reduce costs as travel restrictions, capacity limits, and prolonged closures have been financially devastating for many. This past week, Disney announced that it will shed 28,000 jobs, as the coronavirus has slammed its theme park operations. Work force reductions have also been announced by oil giant, Shell, defense and aerospace leader, Raytheon Technologies, and software company, Salesforce. Layoffs may also be looming for many of the troubled airlines if the federal government does not provide more aid.

It appears as though Congress heard loud and clear that Fed officials believe more fiscal stimulus is necessary to support the economic recovery. With House Speaker Nancy Pelosi and Treasury Secretary Mnuchin resuming pandemic-related aid for the economy, market sentiment has improved as a stimulus deal seems to be back on the table. While an agreement remains far from a reality, it appears to be enough to limit further weakness in the equity markets for now.

The number of new coronavirus cases is on the rise again, with hotspots emerging in the Midwest, New Mexico, Florida and even in previously hard-hit areas like New York City again. The recent spike comes as flu season is approaching, schools are back in session, and many states are taking steps to further relax restrictions or are scrapping them altogether. The latest news that President Trump tested positive for the virus has cast a cloud over the markets and added an elevated level uncertainty to the weeks ahead.

Indices: Core Bond: Bloomberg Barclays U.S. Aggregate Index, High Yield: ICE BofA US High Yield, Large Value: Russell 1000 Value Index, Large Blend: S&P 500 Index, Large Growth: Russell 1000 Growth, Emerging Markets, MSCI EM NR USD, Foreign Equities: MSCI ACWI Ex USA NR USD, REITs: FTSE NAREIT All Equity, Small Blend: Russell 2000

Should you have additional questions, please contact your Cammack Retirement Group consultant or info@cammack Note that this article was published on October 5, 2020. Data represented is as of the publication date. The information contained herein has been obtained from sources that are believed to be reliable. However, Cammack Retirement Group does not independently verify the accuracy of this information.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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