Market Perspective for November 1, 2020

All three major stock indexes posted declines for the month of October. The most significant declines can be attributed to losses by the major tech companies after their indications of uncertainty in their future projections. However, this is offset by about 86 percent of S&P 500 companies publishing positive third-quarter profit reports.

The S&P 500 closed down 1.21 percent on Friday and 5.6 percent for the week after its fourth day of losses over the last five. This represented the worst trading week for the S&P 500 since it hit its pandemic-low of 14.68 percent of losses for the week of March 20. With a loss of 2.77 percent over the month of October, the S&P 500 posted its second consecutive month of losses.

It was also the worst trading week for the Nasdaq since March 20 when it posted a decline of 12.64 percent. It lost 2.29 percent for October, which was its second week of losses in a row. Overall, the Nasdaq has traded up 21.61 percent for the year.

The Dow had its fifth negative trading day out of the last six with losses of 0.59 percent on Friday. Since it closed down 17.3 percent on March 20, the Dow closed out its worst trading week with a loss of 6.47 percent. For the month of October, the Dow lost 4.61 percent, which was its worst monthly low since March’s decline of 13.74 percent. For 2020, the Dow is down 7.14 percent.

The Russell 2000 Index closed down 1.48 percent for the day with a loss of 23.1 points. Over the week, the Russell 2000 lost 6.2 percent. Likewise, the small cap index is down 7.8 percent for the year.

Of the 11 sectors, nine closed down for the day, with consumer discretionary spending posting the largest decline of 3 percent. The information technology sector lost 5 percent for the month, due mostly to the drop in large cap tech stocks, which was the sharpest monthly decline across all the sectors.

Investors also sold technology stocks after earnings because while those earnings were strong, companies are starting to forecast future growth more in line with the pre-pandemic economy. For example, Amazon (AMZN) crushed forecasts of $7.41 per share in earnings, coming in at $12.37 per share. However, shares fell 5.45 percent following the news as investors start turning their attention to 2021 and a full reopening of the economy. Twitter (TWTR) dropped 21.11 percent, or 11.07 points.

Apple (AAPL) beat earnings, but couldn’t offer guidance for the current quarter. Its shares slid 5.60 percent. Likewise, Facebook (FB) shares dropped 6.31 percent, or 17.72 points on Friday. Alphabet (GOOGL) bucked the trend though. Its shares gained 3.80 percent as earnings and sales blew past estimates and announced another stock buyback.

Cruise line stocks saw a significant bump on Friday thanks to the CDC’s update that the no-sail mandate, which is set to expire October 31, will be substituted for a conditional-sail order, which would allow cruises to operate with certain safety protocols. Norwegian Cruise Line Holdings (NASDAQ: NCLH) shares rose 5.5 percent; Royal Caribbean (NYSE: RCL) shares closed up 4.8 percent; and Carnival (NYSE: CCL) shares gained 5.6 percent.

Data published by the Labor Department on Thursday showed an improvement in first-time unemployment claims from the previous week. Last week, 791,000 new claimants filed for unemployment. This week, first-time unemployment claims came in at 751,000. Notably, the most recent data reflects the lowest level of first-time unemployment claims since the beginning of the pandemic lockdowns. The total number of Americans filing continuing unemployment claims decreased by 709,000 from the previous week to 7.8 million based on the latest set of data from the Labor Department of October 17.

Further demonstrating the underlying health of the U.S. economy, the Commerce Department reported GDP growth at an annualized pace of 33.1 percent. This was a marked improvement from the Dow Jones economist survey estimate of 32 percent. Even without the passage of the second round of coronavirus stimulus funding, the increases in consumption, business investment and U.S. exports collectively helped to fuel significant GDP growth in the third quarter. This is particularly impressive in light of the 31.4 percent second-quarter decline.

Housing data was solid last week. New home sales hit an annualized pace of 959,000 in September, down slightly from August. Residential investment spiked 59.3 percent during the third quarter, more than making up for the 35.6 percent decline in the second quarter. Residential investment has increased 6.6 percent from the year ago level.

The Bureau of Economic Analysis also released its monthly economic report this week. Personal income grew 0.9 percent in September, better than the 0.5 percent forecast. Consumer spending rose 1.4 percent, beating the 1.1 percent estimate. Core inflation was in line with analyst expectations at 0.2 percent. The savings rate also remained elevated at 14.3 percent, about double what it was before the pandemic hit. This is positive for future growth because as the economy reopens, the savings rate is falling. Consumers will also spend down savings in future months, creating a double-boost to consumer spending going forward.

The Fed’s Friday announcement regarding increased accessibility for small businesses to its Main Street Lending Program signaled a massive opportunity for small businesses. The minimum loan amounts were decreased from $250,000 to $100,000, and the Fed is reducing the borrowing fees. Small and mid-sized businesses are expected to take advantage of the favorable loan terms and extended payback period to maintain their operations.

Interest rates finished the week with a strong rally. The 10-year yield closed at 0.86 percent, the highest close since June. iShares 20+ Year Treasury (TLT) dipped 0.27 percent on the week.

Investors’ concerns over the recent spike in U.S. coronavirus case counts was likely a strong driver of Friday’s stock sell-off. Uncertainty over the upcoming election and the timing of final results also strongly influenced this recent round of sell-offs. As the future of the election becomes clearer and progress is made on containment of coronavirus cases in the U.S., stock sell-offs are unlikely to continue. Recognizing the fundamental health and long-term value to be gained from the markets, some investors are capitalizing on this rash of sell-offs to buy at a significant dip.


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