Published October 30, 2020
Stock markets this week gave up their October rally effort, sinking back to roughly where they began the month. The lack of a government stimulus package took away some of the wind in the market’s sails. European economic restrictions, seeking to limit a resurgence of the coronavirus, took away the rest of that wind. Investors chose to reduce risk. The resulting stock market actions reflect the current understanding of the economic effects of the pandemic and relative government responses. The chart below compares the market indexes of the U.S., Europe, and Asia.
The far right of the chart shows the recent market response to rising coronavirus numbers. Europe has dropped back to its June level and appears to be rolling into a downtrend. The U.S. is back to its late-July level, trading broadly sideways. By contrast, Asia is close to new highs.
Domestically, there has been an extremely wide range of performance between the companies who have prospered from people working from home and those whose fortunes are tied to a more traditional, mobile population. It’s surprising to many that consumer spending has largely recovered from the pandemic, in no small part due to the first round of government support. Without additional support, most economists expect that spending to slump. Note that this chart shows performance ranging from +50% to -50%, a huge range.
As has been the case all this year, so many competing threads of information and narratives for investors to sort through. The charts above provide a good picture of the major themes that have played out so far. No doubt the remaining weeks of 2020 will continue this year’s trend of uncertainty with stark winners and losers among sectors and countries.
Pre-election volatility showed up in a big way this week, if not a bit later than usual. Stocks historically rise in the week before the election, with a 70% frequency rate. Not this week. Monday saw stocks dump -1.9% as passage of a congressional stimulus package before the election died. Factory orders recorded their fifth straight month of gains Tuesday. However, stocks fell -0.3%, recovering some ground late in the day as Microsoft (MSFT) kicked off a week of earnings from the heavyweight tech/consumer stocks in the market. The software giant’s earnings came in strong. But stocks still sold off badly Wednesday with a -3.5% loss. A new round of shutdowns in Europe spooked investors who see coronavirus numbers rising domestically as well, leaving them fearful of a return to U.S. restrictions. Investors stepped in to buy Thursday ahead of earnings reports from Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), and Facebook (FB). The recovery was modest though, at +1.2%. While those heavyweight companies of the Nasdaq reported huge earnings, their stocks sold off Friday. Shares of all but Alphabet (GOOGL) fell over -5% in Friday’s trade, leading the Nasdaq lower by -2.4%.
The worst week since March for the stock market with the S&P 500 (SPY) falling -5.56% while the Nasdaq 100 (QQQ) sliding -5.39%. The smallcap Russell 2000 (IWM) tumbled -6.12%.
Warm wishes and until next week.