November Economic Update
Investor optimism regarding a second stimulus bill were high at the start of last month igniting strong gains for the first half of October. However, the eventual inaction on passing the second stimulus package, in addition to the rise in global COVID-19 cases and election uncertainty, put pressure on stock prices toward the end of the month.
The Standard & Poor’s 500 Index lost 2.77% and the Nasdaq Composite slipped 2.29%. The Dow Jones Industrial Average, which has lagged much of the year, dropped 4.61%. The roller coaster ride has continued into the beginning of November where stocks have surged to begin the month despite the presidential election results remaining in limbo at this time. (1)
Economic Releases & The Federal Reserve
Amid the attention the stimulus talks and COVID cases garnered, earnings season also began last month. By the end of last month, 64% of the S&P 500 companies reported earnings and 86% had performed above Wall Street estimates. Even more impressively, these earnings were above the five-year average of 73% of companies exceeding analyst estimates. However, these strong earnings reports seemingly had little impact as the market was overwhelmed by the forementioned larger-scale issues in October. (2)
The minutes from September’s Federal Open Market Committee meeting reflected a Federal Reserve highly focused on the economy’s current state. Members expressed concerns about the lack of additional fiscal stimulus, and some suggested this stimulus gap could derail a full economic recovery.
Interest rates will continue to remain low as Fed Members stated inflation would have to average above 2% for a period of time before adjustments to short-term interest rates would be considered; a time frame that will likely be several years from now in 2023 or beyond. (3)
What to Watch in November
The U.S. election will take center stage this month, with the critical concern being whether the election results will be clear and decisive. Should President Trump remain in office, investors may expect him to follow similar policy initiatives during a second term. If former Vice President Biden is elected, investors will be listening closely to public statements and potential cabinet appointments to gain insight into his policy priorities. Regardless of who is elected, the markets are expected to look for signs of a new stimulus measure which is a top priority to maintaining economic stability.