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Here is the ClearWater Market Commentary as of October 30th, 2020:
In this issue:
– Performance of Major Indices
– Market Commentary
– Last Week’s Key Economic
Events and Upcoming Events
Performance of Principle Indexes:
As of 2020/10/30 – Source: www.marketwatch.com
As of 2020/10/30
Last week’s and next week’s key economic events:
Global equities are falling as new cases of COVID-19 reach record levels in several countries.
Daily new confirmed COVID-19 cases per million people
Shown below is the rolling 7-day average. The number of confirmed cases is lower than the number of actual cases: the main reason for that is limited testing.
Source: European CDC – Situation Update Worldwide – Last updated October 29th
Stocks around the world fell this week as growth in COVID-19 cases reached record highs in the United States and major European countries. Several major European economies have reinstated lockdown measures that will likely slow economic activity in the coming weeks.
While the new restrictions threatened to reduce demand for oil, the price of WTI (-10.21%) fell to its lowest level in five months. Simultaneously, sentiment and the need for security in the stock markets pushed the U.S. dollar higher. Stock market volatility, as measured by the Volatility Index (VIX), reached its highest level since June.
Sources: Mackenzie Investments, Cornerstone Macro, Oxford Economics, Morgan Stanley Research, Goldman Sachs Research.
Fears that the increase in COVID-19 cases would weaken the economy were compounded by the end of hopes for a pre-election fiscal stimulus package. In addition, fears that the presidential election results would be tighter also added further pressure on stocks.
All sectors of the S&P 500 fell, led by the technology and industrial sectors. In fact, Boeing, Lockheed Martin and Raytheon Technologies did not help the S&P 500’s cause as they fell when China announced its intention to sanction the three companies in response to U.S. approval for the sale of arms to Taiwan.
Meanwhile, economic data continued to look positive overall. The first reading of third-quarter GDP showed the largest gain (+33.10%) ever recorded, exceeding economists’ expectations.
United States GDP growth rate:
House prices, personal income, and durable goods orders also rose more than expected, and weekly unemployment registrations continued to improve steadily.
United States initial jobless claims:
Source: www.tradinigeconomics.com/united-states/jobless-claims
Quarterly results for U.S. companies appeared much stronger than expected, highlighted by robust growth at Amazon, Microsoft and Alphabet. However, equities still declined after several companies issued cautious forecasts for the coming quarters.
In the S&P 500, the technology and consumer discretionary sectors were particularly weak following the antitrust lawsuit against Alphabet (Google).
However, Alphabet’s stock itself ignored the news and ended the week positively, suggesting that investors did not view the lawsuit as a threat to the company’s business as initially feared by the market.
On the Facebook side, the stock also had a good week, winning simultaneously with Snap Inc, which jumped after solid quarterly results. Thanks to Alphabet and Facebook’s gains, Communication Services was the strongest sector of the S&P 500 this week.
Performance 2020: S&P 500/400/600 Sectors
U.S. stock market valuations as of October 30th, 2020:
Stock market Sectors: The S&P/TSX Canadian Composite Index experienced its largest weekly decline since March due to weakness in the technology sector while the heavyweight, Shopify, declined following its quarterly results.
The energy sector was particularly weak, with several companies reporting disappointing quarterly earnings. The week was marked by the announcement by Cenovus Energy Inc. of its acquisition of Husky Energy Inc. a transaction that made Husky one of the top-performing stocks in the Canadian stock market index.
Economic Data: Finance Minister Chrystia Freeland sought to boost the confidence of Canadians by assuring them that the government’s emergency assistance programs will not be withdrawn any time soon. The Bank of Canada, following its decision on Wednesday to leave interest rates unchanged, also signaled its intention to maintain a high degree of monetary stimulus until at least 2023.
All major stock markets in Europe and Asia ended the week down. As national lockdown was implemented in Germany, Italy, France and Spain, European Central Bank President Christine Lagarde said the economy was losing momentum faster than expected and that further monetary stimulus would be provided by December.
Germany’s stock market index, the DAX, was particularly weak during the week with a performance of -8.61%. The software manufacturer SAP SE, which represents 10% of the index, fell 20% after reducing its revenue forecast due to the impact of COVID-19 on its business.
On the Asian side, stocks held up better than those in North America and Europe. Japan was the best-performing developed market, with employment and industrial production figures better than expected. NBS’s official manufacturing PMI for China was 51.4 in October 2020, very close to the record set in September (51.5). The last reading highlighted the eighth consecutive month of growth in factory activity, against a backdrop of continued economic recovery from the shock of COVID-19.
What to watch this week:
United States:
Canada:
Sources: Bloomberg.com,Yardeni.com, Barron’s.com, Factset.com and Newyorkfed.org
Thank-you for checking out our ClearWater Market Commentary for October 30th, 2020. If you would like to receive the ClearWater Commentary at the start of every week, sign-up for our Newsletter.
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