The week on Wall Street

Stock prices dropped last week as hopes for a fiscal stimulus bill faded and investors focused on rising COVID-19 infections, here and abroad.

The Dow Jones Industrial Average slid 6.47%, while the Standard & Poor’s 500 tumbled 5.64%. The Nasdaq Composite index lost 5.51% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slumped 5.02%.1,2,3

A Difficult Week for Stocks

Stocks opened the week lower as lawmakers failed to pass a fiscal stimulus bill and a pick up in the number of new COVID-19 cases in the U.S. and Europe. Hardest hit were companies most exposed to pandemic-related economic impacts, including energy, travel and leisure, and industrials.

Losses accelerated mid-week on reports of rising coronavirus-related hospitalizations, along with news that Germany and France were reinstating partial shutdown restrictions.4

Stocks attempted to recover on Thursday, but took another leg lower on Friday as earnings reports from the mega-cap technology companies failed to impress investors.

Positive Economic News

There were several strong economic reports during the week, but investors paid little attention. Among the highlights were durable goods orders, which rose for the fifth consecutive month, a sharp drop in initial jobless claims that were the lowest since March 14th, and a 33.1% annualized jump in economic growth during the third quarter.5,6,7

Investors also ignored a strong start to earnings season, which has seen 85% of reporting companies in the S&P 500 index beating earnings estimates by an average margin of 19%.8

The presidential race is much tighter than people expected, and at the time of writing this piece, President Trump has 213 electoral college votes and Joe Biden has 224, both men closing in on that all important 270 number.

One thing we can be sure of is the incredible turnout as roughly two thirds of all American adults have voted, the most in 120 years. Votes are still being counted, and there are millions of mail-in ballots to be called in certain states so making a prediction is still dangerous.

Throughout the night Trump falsely claim fraud and promised to take the election to the Supreme Court, confirming people’s view that this will be the most litigated election ever.

The likelihood that the Republicans will maintain control of the Senate is high, and if Biden goes onto win this will lead to friction with the liberal House, and as a result, tax hikes could stall into next year. A Biden presidency would be constrained by the likes of Mitch McConnell and the Senate Republicans, so any major legislative accomplishments would be initially unlikely.

As in 2016 the polls were wrong again, and many underestimated Donald Trump going into this, but as we can see do so at your own peril. If Trump were to close on a historic victory over the next few days the markets would rally as he aims for an improved stimulus package, looking to bolster the economy wherever possible.

For now, all we can do is wait and hope for a result by Friday as this would give the markets certainty going into the weekend.

© Mahoney Asset Management

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