FINANCIAL MARKET UPDATE 11.10.2020

AUTHOR: JOSH JENKINS, CFA

STORY OF THE WEEK

STOCKS MOVE HIGHER POST ELECTION

For months, investors have been fixated on the election, and many feared the result would seriously impair their portfolio. With the S&P 500 gaining 7.3% last week, those fears do not appear to have been realized (at least not yet). Add in the surprise vaccine news from Pfizer and BioNtech on Monday, and the stock rally got a serious boost to start this week. Recent market action provides us with another example of why it is so challenging to time the market by forecasting future developments.

Initially, President Trump was expected to win reelection, which was viewed as a positive for stocks. This morphed into the “Blue Wave” narrative, where Democrats were expected to win both the White House and control of the Senate. This was going to be a positive for the market instead because it increased the chances for a large dose of stimulus. Now it looks like we will have Democratic control of the White House and a divided Congress, and the narrative has again shifted to make this the desired outcome in the market’s eyes. While the media has announced Joe Biden as the winner, the election has not been officially called. Is there time for the narrative to change once again? In reality, nobody had a clue exactly how the election was going to play out, even less was known about how the market would react to the result, and I didn’t see a single pundit predict vaccine news would overshadow it all.

Ultimately, history has shown us that a neither political party’s control of the White House or Congress has impacted stocks more than the other side. Even if this time was different, there is always the risk of other unexpected developments moving the market, similar to the vaccine news. Investors hate uncertainty, and it can be very tempting to make a large portfolio move to avoid it. Doing so can come with a high opportunity cost in terms of foregone gains. Countless investors play the market timing game. Some will get it right, but few will do so consistently.

WEEK IN REVIEW

  • According to data from FactSet, 89% of S&P 500 companies have reported Q3 earnings thus far, with 86% beating earnings estimates and 79% beating revenue estimates. The earnings growth rate blended between the actual results from companies that have already reported and estimates for companies that have yet to report is -7.5%. This compares to the initial earnings growth estimate at the end of September of -21.2%. With valuations as elevated as they are, the earnings picture needs to improve to justify continued market gains.
  • Last week the Labor Department published the October jobs report, which was better than economists were expecting. During the month, employers added 638,000 jobs versus an expected 530,000, and the unemployment rate fell from 7.9% to 6.9%. This news suggests that the labor market continues to improve despite a rapid increase in coronavirus cases nationally. On the downside, more than a million workers were reclassified as “long-term unemployed”, bringing the total to nearly 4 million workers. These workers have been out of a job for over six months and are generally expected to face increased economic hardships. Additionally, the Federal Reserve’s FOMC held a policy meeting and voted to keep monetary policy unchanged (as expected).
  • The top story moving markets as we enter this week was the announcement by Pfizer and BIoNTech that early data showed their vaccine to be 90% effective in large scale trial. Aside from developing news related to the pandemic and the election, look for inflation and jobless claims data on Thursday.

HOT READS

Markets

  • Job Growth Stronger than Expected in October, Unemployment Rate Slides to 6.9% (CNBC)
  • Fed Holds Interest Rates Steady Near Zero, Says Economy is Still Well Below Pre-Pandemic Levels (CNBC)
  • Manufacturers Fare Better Than Many Service Providers in Covid-19 Economy (WSJ)

Investing

  • What Happens When Investors See People Dumber Than They Are Getting Rich (Ben Carlson)
  • Can Warren Buffett Forecast the Stock Market (Morningstar)
  • Sick of Uncertainty? Read This (Morningstar)

Other

  • Common Probability Errors to Avoid (Farnam Street)
  • Humans Have Lived On the ISS for 20 Years, Here Are the Coolest Discoveries We’ve Made (Popular Science)

ECONOMIC CALENDAR

Source: MarketWatch

MARKETS AT A GLANCE

Source: Morningstar Direct.

Source: Morningstar Direct.

Source: Treasury.gov

Source: Treasury.gov

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Source: FRED Database & ICE Benchmark Administration Limited (IBA)

Do you want to receive financial market updates in your inbox? Sign up here! 

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over nine years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

P: 402.827.2300 | F: 402.827.2319 | E: contact@lutzfinancial.com | 13616 California Street | Suite 200 | Omaha, NE 68154

All content © 2017 Lutz Financial  | Important Disclosure Information |  Privacy Policy

FORM CRS RELATIONSHIP SUMMARY