Hurricane Zeta made landfall in Louisiana late Wednesday afternoon as a strong Category 2, leaving over 2.6 million people without power across seven states. The hurricane quickly weakened to a Tropical Storm, but maintained that strength as it traveled northeast into the Carolinas. Zeta is the 11th named storm and 6th hurricane to make landfall in the United States this year, a seasonal record. As a result of the hurricane, at least six people died, power lines and trees were knocked down, houses were destroyed, and streets were flooded. Close to 2,000 National Guard personnel are assisting with the cleanup work in Louisiana.
Coronavirus cases and hospitalizations across the United States are at their highest levels since May, prompting some states to announce new restrictions on businesses. Global daily deaths came in at more than 7,000 twice this week, bringing the 7-day average higher. Europe continues to struggle with rapidly spreading infections as a full lockdown goes into effect today in France and will last until the end of November. France is working towards a plan that will limit the economic fallout from the lockdown, targeting a contraction in GDP of roughly half the 30% drop that was seen during the first one. Regeneron has stopped enrollment in its trial for its antibody therapy used by President Trump, for patients with serious cases, after a safety issue warning from a third party. Eli Lilly also ceased enrollments into its program after research indicated that patients were unlikely to recover from the treatment in the late stages of infection.
Markets slipped this week. The S&P 500 dropped -5.62% and closed at 3,270. The Dow Jones fell -6.47% and closed at 26,504. Year-to-date, the S&P 500 is up 2.77% and the Dow Jones is down -5.38%
Yields rose this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.38% and 0.87%, respectively.
The spot price of WTI Crude fell this week. Prices fell -10.61% and closed at $35.62 per barrel. Year to date, Oil prices are down -41.66%.
The spot price of Gold fell by -1.26% and closed at $1,878.10 per ounce. Year to date, Gold prices are up 23.78%.
Initial jobless claims fell to 751,000 and the four-week moving average of claims fell by 25,000 to 788,000. Claims fell by 12,000 in Texas, 9,000 in Florida, and by 8,000 in California. Claims rose by 10,000 in Michigan, 6,000 in Illinois, and by 3,000 in Virginia.
Real GDP rose by 33.1% versus expectations for an increase of 32.0%
Personal consumption rose by 40.7% versus expectations for an increase of 38.9%
The core PCE inflation index rose by 3.5% annually versus expectations for an increase of 4.0%
Sales of new single-family homes fell by -3.5% to a seasonally-adjusted annualized rate of 959,000 units versus expectations for an increase of 1.4%
Pending home sales fell by -2.2% versus expectations for an increase of 2.9%
The FHFA house price index rose by 1.5% versus expectations for an increase of 0.7%
New orders for durable goods rose by 1.9% versus expectations for an increase of 0.5%
Durable goods orders ex-transports rose by 0.8% versus expectations for an increase of 0.4%
Core capital goods orders rose by 1.0% versus expectations for an increase of 0.5%
Core capital good shipments rose by 0.3% versus expectations for an increase of 0.4%
The Conference Board index of consumer confidence fell by 0.4 points to 100.9 versus expectations for a reading of 102.0
The University of Michigan’s index of consumer sentiment rose by 0.6 points to 81.8 versus expectations for a reading of 81.2
Retail inventories rose by 1.6% versus expectations for an increase of 0.5%
Wholesale inventories fell by -0.1% versus expectations for an increase of 0.4%
Personal income rose by 0.9% versus expectations for an increase of 0.4%
Personal spending rose by 1.4% versus expectations for an increase of 1.0%
Fact of the Week
The price of lumber increased nearly 50% from 4/30/20 to 8/31/20, the largest 4-month increase ever in the cost of lumber based upon data maintained since 1949. The rally was driven by an acute supply shortage stemming from widespread production cuts due to pandemic-related demand concerns that proved to be short-lived and missed the positive catalysts for home construction and improvement that emerged. (source: Bureau of Labor Statistics, Bloomberg Intelligence).
Yesterday the S&P 500 traded off -3.5%, marking the third consecutive day of losses for a cumulative drop of -5.6% for the week. This most recent move leaves the S&P 500 -8.7% below the most recent high and roughly flat for the year. Since the March 23rd market bottom the market has increased an unprecedented 60% over the following five months. During that recovery, the market posted three consecutive down days only once. As the initial federal stimulus programs ended and uncertainty around further stimulus increased, we saw market complacency replaced by the volatility that often precedes Presidential elections.
With news of Coronavirus related shutdowns increasing at home and abroad, we must be careful to avoid a false narrative. Swift market moves such as this are best described as a market adjustment in search of a headline. Market pundits often fall hostage to the same behavioral biases that they warn investors against. Rather than properly assessing all available information and resulting market impact, these experts instead seek out one culprit for the current market movements. If only it were that easy! In the 39 trading days since the recent market high, the market has traded in negative territory 20 times and posted three consecutive down days five times in just over a month.
While we acknowledge a potential widespread shutdown to contain the Coronavirus would be economically devastating, we don’t believe this concern to be the primary driver behind current market conditions. On the election front, though Biden maintains a large lead in national polls, they have tightened recently and the probability of a Democratic sweep has dropped from over 70% to near 50%. As outcomes become less clear ahead of the elections, profit taking has accelerated and further pressured markets. Also, tightening of polls in battle ground states has increased odds of a contested election, further adding to market uncertainty.
As we move through this election cycle we must recognize that this is not unchartered territory. We have had elections where one party has gained control of the House, Senate and Presidency, in 2000 we had a contested election thanks to “hanging chads”, and earlier this year we managed through a pandemic driven shutdown. Though another shutdown would certainly hamper further recovery, many states seeing increased Covid cases have already taken a stance against shutdowns. In those states with more stringent pandemic protocols, business and citizens are challenging those protocols and are gaining judicial support. With an impending resolution for further Coronavirus relief being anticipated post-election and a strong possibility of increased infrastructure spending next year, the economic backdrop is very favorable. While we remain cautious during times of heightened volatility, we recognize these are also the times to be opportunistic and incrementally position portfolios toward their long-term objectives.
For over 100 years, Old Second Wealth Management has navigated our clients’ assets through a multitude of world events helping them meet their financial goals. As always, please do not hesitate to reach out to your Relationship Manager or Investment Officer should you have any questions or concerns.
The Midwest region of the United States is seeing record new daily cases of the coronavirus, however, the amount of daily deaths has not changed much. Hospitalizations in the United States are currently higher than levels seen in late July and some hospitals in the Midwest are at capacity. Chicago Mayor Lori Lightfoot responded to the new spike in daily cases by imposing a business curfew that would require businesses to close at 10P.M every night. Tighter coronavirus restrictions take effect today in four counties surrounding Chicago, which includes a ban on indoor service at bars and restaurants. Illinois Governor J.B Pritzker put the restrictions in place as a result of a sustained positivity rate of over 8%, and the situation will be evaluated again in two weeks. The Illinois Governor responded to restaurant owners threatening to flout his orders by stating that the state police would be issuing citations and owners could lose their liquor and video gambling licenses if they are in violation.
The United States Embassy in Turkey announced that it is immediately suspending all citizen and visa services as a result of a significant security alert. “U.S Mission Turkey has received credible reports of potential terrorist attacks and kidnappings against U.S. citizens and foreign nationals in Istanbul and potentially other locations” according to the State Department. No other details were given by the State Department, but the announcement comes as Turkey has been testing Russian S-400 air-defense missiles near the Black Sea, despite strong objection from the United States.
Markets moved lower this week. The S&P 500 fell -0.51% and closed at 3,466. The Dow Jones dropped -0.90% and closed at 28,337. Year-to-date, the S&P 500 is up 8.89% and the Dow Jones is up 1.17%
Yields rose this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.37% and 0.84%, respectively.
The spot price of WTI Crude fell this week. Prices fell -3.43% and closed at $39.71 per barrel. Year to date, Oil prices are down -34.97%.
The spot price of Gold rose by 0.23% and closed at $1,903.59 per ounce. Year to date, Gold prices are up 25.46%.
Initial jobless claims fell to 787,000 and the four-week moving average of claims fell by 22,000 to 811,000. Claims fell by 12,000 in Florida, 9,000 in Georgia, 9,000 in Michigan, and by 8,000 in New York. Claims increased by 7,000 in Texas, 5,000 in Massachusetts, and by 5,000 in Virginia.
The level of housing starts increased by 1.9% to a seasonally-adjusted-annualized-rate of 1.42 million units versus expectations for an increase of 3.5%
Existing home sales rose by 9.4% to a seasonally-adjusted-annualized-rate of 6.54 million units versus expectations for an increase of 5.0%
Fact of the Week
Americans have reduced their outstanding balances on their revolving debt, e.g., credit card debt and home equity loans, for 6 months in a row, i.e., March 2020 through and including August 2020 (source: Federal Reserve).
President Trump walked back statements made earlier in the week about holding off on stimulus until after the election. The President said last night that talks on an aid package had resumed, and Speaker Pelosi and Treasury Secretary Mnuchin are expected to talk speak again.
Regeneron Pharmaceuticals has asked the FDA to provide emergency use authorization on its REGN-COV2 antibody combination for treatment of COVID-19. The company stated they have enough for about 50,000 patients, and expect to have about 300,000 doses within the next few months. The same drug was given to President Trump last Friday, and the President has spoken positively of the treatment on Twitter, saying that he would approve emergency use of the drug.
Speaker Pelosi and Treasury Secretary Mnuchin met on Wednesday to discuss a possible standalone relief package for airline companies, totaling as much as $25 Billion. The relief package is being considered a bipartisan stand-alone relief package, separate from a large scale economic relief package. Talks of the airline relief come after major airlines began to announce plans to begin furloughing thousands of workers if they did not receive government aid last week.
Markets rallied this week. The S&P 500 rose 3.89% and closed at 3,477. The Dow Jones jumped 3.31% and closed at 28,533. Year-to-date, the S&P 500 is up 9.2% and the Dow Jones is up 1.86%.
Interests rates rose this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.34% and 0.77%, respectively.
The spot price of WTI Crude oil rebounded this week. Prices fell 9.45% and closed at $40.55 per barrel. Year to date, Oil prices are down -33.59%.
The spot price of Gold rose 1.55% and closed at $1,929.32 per ounce. Year to date, Gold prices are up 27.16%.
Job openings decreased by 204k to 6,493k in August vs. an upwardly revised 6,697k in July. The slowdown is consistent with some slowdown in labor demand heading into fall months.
The ISM non-manufacturing index increased by 0.9 points to 57.8 in September, against expectations for a decline.
Initial jobless claims fell more than expected for the week ended October 3. The 4-week moving average declined by 13,000 to 857,000.
Nationwide continuing claims—the number of persons receiving benefits through standard programs—decreased 1,003k to 10,976k.
Fact of the Week
The US Money Market industry has grown from $3.63 Trillion on 1/1/2020 to $4.4 Trillion on 9/30/2020. Despite investors holding more cash, the S&P 500 is up over 9% year to date on a total return basis (Source: Investment Company Institute).
President Trump is reportedly experiencing “mild symptoms” after he and first lady Melania Trump tested positive for coronavirus late last night. One of the President’s closest advisors, Hope Hicks, tested positive for the coronavirus on Thursday evening which prompted immediate testing for everyone that has been in close contact with her. President Trump and the first lady will begin a quarantine process that involves the both of them remaining in the White House while he continues to handle his duties similar to the way Canada’s Prime Minister Justin Trudeau did when he contracted the virus in March. All of the White House officials who have been in contact with the President, some members of the House of Representatives, and Presidential Candidate Joe Biden have all tested negative for coronavirus today. Economic Advisor Larry Kudlow told reporters that the President would take at least 10 days off the campaign trail. The news certainly calls into question the debate scheduled for October 15th in Miami Florida, as it is likely he will remain isolated. The Vice Presidential debate, however, is scheduled to take place as planned on Wednesday in Salt Lake City Utah as Pence’s physician stated that per CDC guidelines, he doesn’t need to quarantine.
Congress remains far from reaching a deal as negotiations for another coronavirus related relief bill continued this week. Republicans have voiced opposition to the scale of aid proposed by the Democrats for state and local governments while the Democrats are pushing for an end to tax breaks. After accounting for the differences between the two sides, they remain apart by about $600 billion for a comprehensive relief package. House Democrats passed their $2.2 trillion HEROES Act late Thursday night, which lacks bipartisan support. There was a glimmer of hope early Friday after Pelosi announced that she is urging airlines to delay planned furloughs, as an agreement is “imminent” on government assistance, but Congress later adjourned with no deal.
Markets rebounded this week. The S&P 500 rose 1.54% and closed at 3,348. The Dow Jones jumped 1.88% and closed at 27,683. Year-to-date, the S&P 500 is up 5.12% and the Dow Jones is down -1.25%.
Interests rates rose this week. The 5 year and 10 year U.S. Treasury Notes are yielding 0.28% and 0.69%, respectively.
The spot price of WTI Crude oil fell significantly this week. Prices fell -8.10% and closed at $36.99 per barrel. Year to date, Oil prices are down -39.42%.
The spot price of Gold rose 2.15% and closed at $1,901.67 per ounce. Year to date, Gold prices are up 25.73%.
Initial jobless claims fell to 837,000 and the four-week moving average of claims fell by 12,000 to 867,000. Claims fell by 10,000 in Florida, 8,000 in Texas, and by 6,000 in Georgia. Claims rose by 3,000 in Maryland, 2,000 in New Jersey, and by 2,000 in Illinois.
Retail inventories rose by 0.8% versus expectations for an increase of 1.1%
Wholesale inventories rose by 0.5% versus expectations for a decline of -0.1%
The ISM manufacturing index fell by 0.6 points to 55.4 versus expectations for a reading of 56.5
Construction spending rose by 1.4% versus expectations for an increase of 0.7%
Factory orders rose by 0.7% versus expectations for an increase of 0.9%
The University of Michigan’s index of consumer sentiment rose by 1.5 points to 80.4 versus expectations for a reading of 79.0
The Conference Board index of consumer confidence rose by 15.5 points to 101.8 versus expectations for a reading of 90.0
Nonfarm payrolls rose by 661,000 versus expectations for an increase of 859,000
Average hourly earnings rose by 0.1% versus expectations for an increase of 0.2%
The unemployment rate came in at 7.9% versus expectations for a reading of 8.2%
Private sector employment in the ADP rose by 749,000 versus expectations for an increase of 649,000
The third estimate of second quarter GDP was revised higher by 0.3% to -31.4% versus expectations for a reading of -31.7%
The core PCE price index rose by 0.33%, in-line with expectations and the year-over-year rate rose by 1.59% versus expectations for an increase of 1.40%
Personal income fell by -2.7% versus expectations for a decline of -2.5%
Personal spending rose by 1.0% versus expectations for an increase of 0.8%
Pending home sales rose by 8.8% versus expectations for an increase of 3.1%
Fact of the Week
Over the last 30 years, the S&P 500 stock index has gained an average of +4.7% over the final 3 months of the year. 24 of the last 30 fourth quarters have produced a positive total return gain (Source: BTN Research)