ClearWater Market Commentary as of October 2nd, 2020

Here is the ClearWater Market Commentary as of October 2nd, 2020:

IN THIS ISSUE:
– Performance of Major Indices
– Market Commentary
– Last Week’s Key Economic  
  Events and Upcoming Events

Performance of Principle Indexes: 

S&P/TSX Composite Index
5 Day	0.71%
1 Month	0.87%
YTD	-4.13%
1 Year	-0.40%

As of 2020/10/02 – Source: www.marketwatch.com

Index Performances	Last 5 Days	YTD
Russell 2000	4.37%	-7.74%
Gold	2.16%	25.30%
CAC 40	2.01%	-19.29%
Dow Jones Industrial	1.87%	-3.00%
DAX	1.76%	-4.23%
S&P 500	1.52%	3.64%
Nasdaq	1.48%	23.43%
FTSE 100	1.02%	-21.75%
S&P/TSX Composite	0.83%	-5.06%
Nikkei 225	-0.25%	-2.65%
Hang Seng Index	-1.19%	-16.78%
Shanghai Composite	-1.88%	5.51%
WTI Crude (oil)	-7.62%	-39.57%

As of 2020/10/02


Last week’s and next week’s key economic events:

Encouraging economic data releases drive stock markets higher despite U.S. election uncertainties.

October’s surprise – U.S. President Donald Trump tested positive for COVID-19 on Friday – This is adding further uncertainty on the eve of the U.S. presidential elections on November 3rd.

However, global stock markets retained most of the gains made during the first four days of the week. These gains were the result of signs of continued recovery in the United States, Europe and China. 

The news of Donald Trump’s infection raised questions about his ability to campaign (including whether the second debate will still take place on October 15), the timing of confirmation hearings for his Supreme Court nominee and whether an agreement can be reached on the fiscal stimulus package. 

Uncertainty about the prospects for a stimulus agreement increased pressure on oil prices (-7.62%), which were already falling due to fears of overproduction. While improving data strengthened economic sentiment, government bond yields rose and the U.S. dollar fell. The greenback’s decline in turn pushed up the price of Gold (+2.16%).

Historically, the wider the time horizon, the lower the probability of equity losses! 

Probability of negative returns, based on S&P 500 Total Returns from 1929 – present

• US economy (S&P 500: +1.52%): 

All sectors of the S&P 500 have gained ground with the exception of the energy sector. 

Economic Data: The monthly report on the U.S. employment sector showed a loss of momentum, which was deemed disappointing by the market.

However, the Conference Board’s consumer confidence index was better than expected, reaching its highest level since March and posting its strongest increase in 17 years.

Weekly unemployment claims were lower than expected and fell to 867 thousand, the lowest level since March. Construction spending for August also increased more than expected. For its part, the ISM Purchasing Managers’ Index (PMI) was slightly below expectations. However, the PMI remains at its highest level in nearly two years and still shows that manufacturing activity is growing at a sustained pace.
 

United Sates Jobless Claims 4-Week Average

U.S. stock market valuations as of October 2nd, 2020:

• Canadian markets (S&P/TSX: +0.83%):

The Canadian S&P/TSX Composite Index underperformed its U.S. counterpart, the S&P 500, which was weighed down by weakness in the energy sector.

Oil (-7.62%): The oil market struggled with the return of Libyan production and an unexpected increase in exports from Saudi Arabia and Iraq. Russian exports are also expected to increase according to analysts’ expectations.

On the other hand, the outlook for oil weakened when China announced its intention to increase non-fossil fuel sources to 20% of its energy needs by 2025, five years ahead of schedule. This follows a surprise pledge by the Chinese president at the UN General Assembly last week to seek carbon neutrality by 2060.

Stock market sectors: Canadian investor sentiment was also dampened by a Statistics Canada estimate that Canadian GDP grew by only 1% in August – a much slower pace than the 15% gain in the three-month period ending in July. 

The technology sector led the TSX’s advance, while Shopify followed the progress of U.S. large caps, which continued to rebound from the weakness experienced in early September.

• European and Asian economies:

European stock markets had a positive week, as economic confidence in the Euro-Zone rose for the fifth consecutive month. Other news that boosted Europe’s stock markets included lower unemployment rates in Germany – and surprisingly in Italy – and stronger retail sales.

Even Japan (-0.25%), where the economy has tended to struggle more than in many other regions, reported an increase in retail sales, better than expected industrial production and the highest manufacturing PMI in seven months. However, the Japanese stock market underperformed as technical problems forced the Tokyo Stock Exchange to close.

In China, manufacturing and services’ PMIs all exceeded expectations, indicating a continued economic recovery.

What to watch this week:

The “Fed Minutes” of the U.S. Federal Reserve and the European Central Bank will be in the spotlight this week. In addition, the stock markets will keep an eye on developments surrounding the U.S. presidential election as Mike Pence and Kamala Harris face off in the vice presidential debate.

On the economic data front, important publications include the monthly UK GDP, Euro-zone retail sales, and German factory output and orders.

Canada :

• Employment Report – September
• Housing starts – September

Sources: Bloomberg.com, Yardeni.com, Barron’s.com, Factset.com and Newyorkfed.org

Thank-you for checking out our ClearWater Market Commentary for October 2nd, 2020. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.