Markets Rise and Fall with Ins and Outs of Stimulus Talks

President Donald Trump, First Lady Melania Trump and others testing positive for COVID-19 on the heels of Tuesday’s debate were the top storylines of the week, but that wasn’t necessarily what drove markets. Stocks were largely unfazed by a fiery, interruption-laced debate. Regarding election results, one could argue markets have factored in the prospect that results may not be final for days or weeks after polls close. The president’s diagnosis is a surprise and a new element of uncertainty. But markets seemed squarely focused on the next financial aid package from Congress, and that drove trading through the week. Given the stock market is an expectations tool, it makes sense.

Markets assumed another round of aid was a given and expectations were baked in, as they say, for weeks. But Congress has failed to reach a deal and that’s driven recent volatility, because a “sure thing” started looking less certain. The stakes are certainly rising to get a deal done as American and United airlines announced they would furlough 32,000 workers and Disney laid off 28,000.

Friday afternoon, stocks (particularly cyclical stocks that stand to benefit from a healing economy) rose sharply after House Speaker Nancy Pelosi asked airlines to hold off on job cuts, saying a deal was close at hand. For its part, the House of Representatives approved a $2.2 trillion proposal Thursday; the White House has offered $1.6 trillion. Clearly, the on-and-off nature of these negotiations is being reflected in the highs and lows throughout the week.

Bottom line: Nothing that’s happened in the past quarter moves the needle on how we are thinking about the economy or how we are investing. The economy is adapting, and we are continuing to progress toward a new normal. There are still risks with the virus and certain sectors of the economy are on the ropes, but we may be getting closer to the end of the fight. While fiscal stimulus will help bridge the gap in the meantime, we don’t think it’s a market-breaker if a deal doesn’t get done.

WALL STREET WRAP

September Jobs Report a Push: The U.S. economy added 661,000 jobs in September, which was below expectations of 859,000, with the unemployment rate falling to 7.9 percent from 8.4 percent. In all, the jobs report wasn’t an absolute positive or negative — we’ll call it a push. While the unemployment rate fell, that’s because fewer people are looking for jobs. Nonfarm payrolls didn’t reach expectations of 859,000, but August job gains were revised to 1.49 million up from 1.37 million. Further, private payrolls (as opposed to government jobs) rose 877,000 against expectations of 850,000. Government employment, though, was a drag in September shedding 216,000 jobs due to a reduction in local and state government education and a reduction in Census employees.

Consumer Confidence Surges: Consumer confidence rose in September to its highest level since the pandemic began, reaching 101.8 versus 86.3 in August — the biggest single month rise in 17 years. That’s a welcome rebound after the measure fell the prior two months, but it remains well below the index’s pre-pandemic level of 132.6. Despite the expiration of additional jobless benefits and delays in another stimulus package, consumers expressed more optimism about their short-term financial prospects and the labor market. That could help support spending into the critical final quarter of 2020.

A Check on Spending and Incomes: Personal income fell 2.7 percent in August as the benefit from enhanced unemployment checks faded. However, keep in mind household income is still 2 percent above its level in February before the pandemic began. Income has been boosted by those stimulus checks, enhanced benefits and stock market gains.

Spending, on the other hand, rose 1 percent in August and for the fourth month in a row. Aggregate spending is just 3.4 percent below its pre-pandemic high. What’s more, Americans are saving more than they were prior to the pandemic, which bodes well for a continuation of the trend. The growth in spending is encouraging, as there were some concerns it would slow substantially as government aid expired. The data indicate the economy is showing some resilience.

THE WEEK AHEAD

A Relatively Quiet Week Ahead: We’re entering a quiet week, at least in terms of expected economic data. The Markit services PMI, as well as the ISM services index, will be released Monday (though we covered the flash readings recently). There’s a smattering of company’s reporting results for the quarter, though earnings season really picks up next week. We’ll dig into the minutes from the recent Federal Open Market Committee Meeting. However, the bigger storylines for the week will be stimulus and the president’s health.

The Quarter in a Nutshell: It’s been an eventful quarter, but that’s been the case for the entire year. This week, we’ll publish our deeper insights and analysis from the quarter. We’ll dive into the coronavirus, the election and what market leadership may look like as the economic recovery pushes forward. Look for our quarterly market commentary here on Thursday.

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