Domestic stocks enjoyed a significant rally last week. Uncertainty over the timing of final presidential election results and coronavirus case count surges across the country did not hamper recent gains. The Dow, S&P 500 and Nasdaq all rounded out their best-performing week since April. Even more notable, the S&P 500 posted its best trading week during a presidential election since 1932.
Rather than spurring a sell-off frenzy in the market, the delay in the final ballot count for several key swing states has had a net positive effect on the markets. The major indexes appear to be taking comfort in the ultimate political gridlock that will ensue regardless of the outcome of the election. Instead of having to contend with the possibility of massive reforms in big tech and healthcare as well as a potential Green New Deal, the markets settled into their rally upon the near certain outcome that both Congress and the White House will not be under Democratic control. This conforms to the historical trend since 1945 of political gridlock in Congress and the White House producing significantly higher annualized returns (approximately 4 percentage points higher) than in years when the same party controlled the two branches.
Although two of the three major indexes were slightly down on Friday, their losses did not significantly detract from their rally over the four previous days. Friday’s market activity was more indicative of a pause in the rally than a loss of overall momentum.
On Friday, the Dow lost 66.78 points or 0.24 percent. The Dow gained 6.9 percent for the week even accounting for Friday’s slight decline. Friday’s drop in the Dow was significantly affected by the dips in shares of UnitedHealth (UNH) and Chevron (CVX) of 1.96 and 1.37 percent, respectively.
The S&P 500 was up 7.3 percent for the week but had a small loss of 0.03 percent on Friday. CVS (CVS) was one of the best performers in the S&P 500 for Friday, with a gain of 5.76 percent.
The Nasdaq posted modest gains on Friday of 4.3 points or 0.4 percent. Of the major indexes, the Nasdaq had the most significant rally of the week with a gain of 9.1 percent. Mogo Inc. (MOGO) was a top performer on Friday for the Nasdaq, with a gain of 36.57 percent. Assembly Biosciences (ASMB) was one of the index’s worst for the day after losing 65.37 percent.
The Russell 2000 lost 15.89 points or 0.98 percent on Friday. The small-cap index is still on track of an overall positive year, with a gain of 2 percent so far this year.
Sectors were strong across the board. Technology benefited from reduced risk of BigTech regulation. SPDR Technology (XLK) gained 9.62 percent. SPDR Materials (XLB) climbed 7.58 percent. Precious metal miners were big winners thanks to a weaker U.S. dollar. VanEck Gold Miners (GDX) and Global X Silver Miners (SIL) both gained more than 10 percent. Agricultural commodities were also strong, led by soybeans which closed at a new 52-week high.
iShares Nasdaq Biotechnology (IBB) gained 5.51 percent after the FDA appeared positive on an Alzheimer’s drug made by Biogen (BIIB). Shares of the biotech giant climbed 30.48 percent on the week. If the drug receives approval, it will be the first new treatment in Alzheimer’s in 20 years.
Foreign funds performed well. iShares MSCI EAFE (EFA) rallied 7.83 percent while iShares MSCI Emerging Markets (EEM) added 7.25 percent.
This week’s jobs report renewed confidence in the economy. The Labor Department published better than expected job creation data for October in Friday’s report. Instead of the projected 580,000 jobs added, an additional 638,000 jobs were reported last month. Importantly, the vast majority of new jobs were added in the private sector, which helped to balance out a loss of 268,000 public sector jobs. Further bolstering the outlook on the pace of the U.S. economy, the Labor Department also revised September’s job creation report upward to 672,000 new jobs created.
In addition, the Labor Department released a markedly improved unemployment rate of 6.9 percent, which was down a point from September’s rate. A deficit of 10 million jobs lost since the initial coronavirus shutdowns remains, but the impressive pace of private sector job creation should continue to help fill that gap. Another metric in tracking the economy’s progress on recovery is the anticipated increase in permanent layoffs for private sector jobs as opposed to temporary layoffs.
Although the Labor Department’s jobs report was mainly positive this week, the recent job growth is not enough to move the Fed off course from its stimulus posture. Even as new private sector jobs continue to be added, the lagging unemployment since March remains a point of concern for the Fed in terms of keeping interest rates low and not prematurely scaling back any stimulus benefits.
Both the manufacturing and service PMIs jumped in October. The manufacturing PMI jumped to a new two-year high in October as new orders climbed to a 17-year high.
Treasury yields experienced a positive week, with the 10-year yield gaining 0.82 percent on Friday due to expectations that the inflation rate will increase. This rally helped to offset the declines in Treasury yields from earlier in the week. On Wednesday, the 10-year yield and 30-year yield had their worst decline since March, with losses of 13 and 15 basis points, respectively. iShares iBoxx Investment Grade Corporate Bond (LQD) gained 2.06 percent, iShares iBoxx High Yield Corporate Bond (HYG) 2.05 percent and iShares 20+ Year Treasury (TLT) 1.27 percent for the week.
Earnings season remained highly positive for stocks. Winners this week included Nvidia (NVDA) and Cloudflare (NET), gaining 16 percent and 24 percent, respectively.