Thank a Veteran

In my morning note to you, dated 10/26, I led with: “Never short a dull market.” Last week’s price action, though fueled by an unusual confluence of forces and events, did provide a rather dramatic illustration as to why that adage holds so much weight with investors. Despite pricing weakness, which was clearly evident last Friday, the major US equity indices had a rather remarkable week. The Dow Jones Industrials last week, for example, gained 1,821.80 points or 6.87% and that index was the laggard of the three major US equity indices! Over the same period, the S&P 500 gained 239.48 or 7.32 % and the Nasdaq Composite added 983.84 points or 9.01%! In short, last week was one of the most constructive of 2020 for market bulls. It was the best week for the S&P 500 since April. The thesis supporting last week’s dramatic rally can be found primarily in the U.S. general election results but also in several other factors. We are experiencing a healthy rebound in economic data, interest rates are either at zero or darn close to it, effectively providing little in the way of competitive yield for equities, and we are in Q4. Normally the vaunted “January Effect” begins to show its marks in Q4 equity market trends.

For the time being investors seem encouraged at the thought of a divided Washington D.C.. With the Democratic party and with all of the large-cap tech backing Biden/Harris, the Dems have secured the White House, the Republicans have, at the moment, maintained their slim majority in the Senate. The Dems’ control over the House was marginally impaired by insignificant gains by Republicans.

Last week’s economic calendar highlights:

The Institute for Supply Management (ISM) Manufacturing Index reading for October, released Monday morning, came in significantly stronger than Econoday consensus. Consensus was 55.7. The actual reading was 59.3. The International Trade in Goods and Services data for the month of September came in at consensus, $-63.9B. Weekly Jobless Claims for the week ending 10/31 were 751K – slightly above the Econoday consensus of 745K. Initial claims dropped 7K. The 4-week Moving Average stands at 787K. Neither the FOMC Announcement, nor the Fed Chair press conference shortly thereafter were able to upset the robust rally that defined last week’s equity market advance.
Easily the highlight of the week was the October Employment Report defying conventional thinking as did the ensuing drop in the unemployment rate.

Nonfarm payrolls – M/M 638K. Econoday consensus was 575K
Unemployment Rate for September was 7.9%. October’s reading was 6.9%
Private Payrolls in September were revised to 892K. In October, they rose to 906K.
Even the Labor Force Participation rate came in stronger than expected, 61.7.

After everything is said and done, it appears as though Joseph Biden will be the 46th President of The United States though President Trump has yet to concede as of this typing. I am very interested in seeing how markets behave between now and the swearing in of our new President, Joe Biden. I am cautiously optimistic.

The President-elect has promised the American people that he will shut down the American economy as soon as he takes office as a way of combating the COVID-19 pandemic – if that is what science dictates. I believe that President Biden will keep his word. He has promised to begin the process to move the American economy away from fossil fuels on day one. Again, I believe President Biden will keep his promise even though following through on this promise could potentially impact millions of jobs. He and ticket mate Kamala Harris have promised to rescind President Trump’s signature tax reform legislation, promising to raise taxes to the tune of trillions of dollars and to do so aggressively. Both President-elect Biden and Vice-President Elect Harris have enthusiastically supported the United States re-engagement with the Paris Climate Treaty, The Trans Pacific Partnership, the Iran Nuclear Treaty, removing the southern border wall, opening up migration to all, and of course have both endorsed the “Green New Deal.” It is not clear whether President Biden will revisit the newly negotiated USMCA in favor of the NAFTA deal installed several decades ago. It is unclear where they fall on the topic of “Packing” the federal court system including the U.S. Supreme Court. I think it is safe to say that the Affordable Care Act will now be irrevocably cemented into the U.S. health system in spite of President Trump’s best efforts to do away with it. As is normally the case in Presidential elections, a lot of promises are made. We will see how it all pans out.


Though we are clearly in a confirmed uptrend it is entirely likely that some weakness will bleed into equity markets this week. Recent dramatic gains need to be consolidated before we can punch through what appears to be a potential triple top.

This week’s economic calendar highlights:

Nearly all of the most important economic releases this week are scheduled for Thursday. The Consumer Price Index (CPI) for October is the first significant release of the day. The reading for October M/M is expected to be 0.2% – matching September’s reading. Weekly Jobless Claims for the week ending 11/7 are out at 8:30 am. Econoday consensus is 741K. The 4-week moving average stands at 787K. Fed Chair Powell is scheduled to speak at 9:30 am. PPI-FD for October, issued by the Bureau of Labor Statistics, is expected to slacken from September’s 0.4% reading.

Econoday consensus for the release is as follows:

PPI-FD M/M 0.2%
PPI-FD Y/Y 0.4%
Ex Food & Energy M/M 0.2%

Photo: MilitaryBenefits

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