Market Summary

The pace of the most recent market decline picked up this week, with stock market volatility rising to its highest level since June. The S&P 500 declining 5.6% while the NASDAQ and Dow Jones fell 5.5% and 6.5%, respectfully.

Investors chose to overlook robust quarterly earnings reports from the tech heavyweights, focusing instead on the negative impact of rising coronavirus cases, election uncertainty and fading hopes of an imminent U.S Coronavirsus relief package.

The U.S Economy made significant steps in returning to pre-Covid levels of GDP this quarter, with growth surging at a 33.1% annualized pace following the record 31.4% plunge in the prior quarter. This sharp upturn leaves the economic activity just 3.5% below the pre-Covid peak.

60% of the S&P 500 has now reported Q3 earnings. According to Factset, more than 85% have exceeded consensus expectations, well above the 5-year average of 73%. On average, companies have outperformed earnings expectations by 19% in Q3 2020, over four times the 5-year average positive surprise. While all these positive earnings reports are good news for market participants, it begs the question. Is this a true reflection of company performance, or has the hurdle just been set far too low?

Equities

5.60%S&P 500

The S&P 500 and NASDAQ turned in their worst weekly performance since March following Wednesday’s big sell-off with all sectors reporting negative returns for the week.

Currency

1.60%USD/EUR

The U.S. dollar gained against the Euro as the ECB President Christine Lagarde’s gave an uninspiring prognosis for the European economy. With many European countries now increasing their lockdown protocols in an effort to contain the spread of the virus, the downbeat forecast looks set to persist.

Bond Yields

0.88%US 10Y TREASURY YIELD

U.S. Treasury Yields rose slightly from resent suppressed levels despite President Trump acknowledging that there would be no economic stimulus deal before the U.S. election next week. short term demand may push yields lower over coming weeks as global coronavirus cases reach records highs and the presidential uncertainty looms.

Commodities

10.00%CRUDE OIL

Crude oil reported its worst week since April, tumbling more than 10%. The ‘black gold’ fell to its lowest level in 5 months to $36 a Barrel. The economic impact of rising coronavirus cases worldwide is a further blow to demand and poses more difficult questions for this distressed commodity.

best3.7%Industrials

Worst6.5%Technology

Market Outlook

The U.S. presidential election will undoubtedly dominate the coming week’s news feed as the market waits with bated breath to see who will lead the world’s largest economy for the next four years. Biden remains ahead in the polls, but Trump’s recent recovery following the second debate and the “hidden Trump Voters” cast more uncertainty on the potential outcome than the polls may suggest.

Regardless of your political preference, the most crucial election outcome for the market, at this point, is a clear winner. A drawn-out election poses significant market risk. A scenario of court interventions and ongoing recounts has the potential to spark civil unrest and stall fiscal stimulus negotiations, ensuring that uncertainty remains clogged in the market over the short-term.

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