Market Summary

Stocks posted their largest weekly rally since April despite the mid-week uncertainty following Tuesday U.S. presidential election. As a clear path to victory emerged for former vice president Biden, the likelihood of a democratic sweep faded with the Republican Party expected to retain control of the Senate. This combination of a Biden presidency and a split Congress represents a goldilocks scenario for investors, and market participants reacted accordingly.

A Biden presidency offers less uncertainty and less turmoil in terms of foreign relations, while legislative gridlock in Washington as a result of a divided Congress will stall any liberal policy aspirations, preventing significant changes to the tax code, supporting corporate earnings growth into the future.

Some positive economic news saw the jobs comeback continued in the U.S with 638,000 new jobs added in October. The unemployment rate now sits at 6.9%, with 11.1 million Americans still unemployed.

Elsewhere, global coronavirus cases continued to surge, passing 50 million during the week with over 1.2 million deaths. Europe once again sits at the epicentre of the crisis with over 12.5 million positive cases, while the U.S. has now seen more the 125,000 daily cases three days in a row.

Equities

7.4%S&P 500

Stocks rallied as investors focused on favourable election results despite a continued surge in global coronavirus cases. A week after dropping nearly 6%, the major U.S. stock indexes recovered that lost ground and then some. The S&P 500 jumped 7.4% while the tech-heavy NASDAQ surged 9%.

Currency

1.90%USD/EUR

The U.S Dollar slipped this week as safe-haven demand for the greenback weakened following Joe Biden’s U.S. presidential victory. The potential for a more diplomatic trading relationship could see the reversal of tariffs in place and boost global trade, leading to an increased demand for trade-exposed emerging market currencies in the future.

Bond Yields

0.82%US 10Y TREASURY YIELD

Long term treasury yields ticked down during a volatile week. Yields were driven lower as the emergence of a split government reduces the likelihood of an expansive stimulus package.

With that said, recent positive vaccine news may see investors dumping government bonds and migrating towards riskier assets, pushing bond yields higher over the coming week, with the 10-year U.S. treasury likely to edge ever closer to the elusive 1.0%.

Commodities

14.9%CRUDE OIL

This week saw the return of weekly double-digit returns for Bitcoin. The difference this time around is that it has occurred without the typical mind-bending volatility that we associate with the now infamous cryptocurrency. Bitcoin surged almost 15% for the week, climbing to its highest level since January 2018 and has now risen 110% year-to-date.

best0.98%Technology

Worst0.80%Energy

Market Outlook

President Trump pledged on Saturday to go forward with a legal strategy that he hopes will overturn state results that gave Biden the win.

Despite these claims, investors seem inclined to shrug off Trump’s refusal to concede. While the race was close, it appears it was not close enough to credibly argue that cheating impacted the outcome.

Positive vaccine news looks set to push markets higher this week as Pfizer and BioNtech revealed a breakthrough in the race to find a vaccine for Covid-19. On Monday morning, the drugmakers announced that a vaccine had been found to be more than 90% effective in late stage trials. Presuming FDA approval, the vaccine could be available in limited use as early as late December and widely available by the third quarter of 2021.

Service sectors are likely to be the big winners as a result of this latest vaccine news. Industry’s such as Airlines and Hotels which have been decimated by the pandemic are expected to claw back losses over the week, while stay-at-home winners such as Zoom may well dip from their current eye-watering valuation levels.

In short, A robust risk appetite as a result of favourable election results and positive vaccine news is likely to drive stocks and treasury yields higher while the dollar is likely to falter over the week.

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