Nov. 2-6, 2020
What happened last week
North American stock markets posted their biggest rally since April
Coming off the worst week for North America’s benchmark exchanges since March, equity markets bounced back and turned in positive returns across the board. As expected, the U.S. presidential election was a key driver of market performance, even with election results being too close to call – and subject to legal challenges, in some states – days after the polls closed.
Momentum began to swing upward on Monday, as manufacturing data for the month of October showed signs that economies around the world were continuing to recover from the pandemic-related lockdowns of March and April. According to China’s Caixin/Markit Manufacturing Purchasing Managers’ Index, the country’s factory sector expanded for a sixth-straight month – marking the fastest pace in nearly 10 years. In the U.S., the Institute for Supply Management reported that domestic factory activity had increased to the highest level since November 2018. The IHS Markit Canada Manufacturing Purchasing Managers’ index indicated that Canadian manufacturing grew for a fourth-straight month.
Global oil prices strengthened early in the week following reports that U.S. inventories fell the week prior, and that OPEC+ (the Organization of the Petroleum Exporting Countries, and its allies) was considering an extension of soon-to-expire production limits, as a second wave of pandemic lockdowns around the world weighed down demand for the commodity.
Investors reacted as U.S. election results trickled in
While equity markets trended upward, performance within underlying sectors shifted through the week – notably, as the U.S. election results began to reveal themselves on Tuesday. By Thursday – with hundreds of thousands of votes yet to be counted in key battleground states – investors appeared to be betting on a victory for former Vice-President Joe Biden over President Donald Trump, and on Congress remaining split between a Democrat-controlled House of Representatives and a Republican Senate. With diminishing prospects of a significant economic-stimulus package (more likely to be passed under a Democrat-controlled Congress), investors began to move money away from sectors that would benefit from increased government spending (e.g., industrials); instead, they moved money back into sectors that have performed well through the pandemic – those with less reliance on government intervention (e.g., technology). According to our fund-manager partners at Addenda Capital Inc., “Power sharing within the legislative branch does not come with a positive tone, as bi-partisan negotiations could either delay, reduce the scope or even block the implementation of some of the programs that either candidate could champion. They add: “infrastructure spending programs as well as tax increases put forward by a Biden administration would likely face the opposition of a Republican-led Senate given its pro-business and anti-tax ideology.”
The U.S. Federal Reserve held monetary policy steady amid election uncertainty
On Thursday, in its latest update on monetary policy, the U.S. Federal Reserve left the federal funds rate at 0.25%, where it has been since March. At the same time, it announced no changes to its asset purchase plans to support financial-market activity. An official statement from the central bank’s Federal Open Market Committee noted the following: “Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year... The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.” U.S. Federal Reserve Chair Jerome Powell later added: “I think we’ll have a stronger recovery if we can just get at least some more fiscal support.” This comment was referencing a further economic stimulus package, which has been held up by partisan debate in Congress.
The stock and bond market*
|Dow Jones Industrial Avg.
|S&P 500 Index
| 10-yr GoC Yield
|10-yr U.S. Treasury Yield
|WTI Crude Oil (US$/bbl)
|Bank of Canada Prime Rate 2.45%
*Weekly performance ending November 6, 2020. Sources: www.bloomberg.com, www.bankofcanada.ca and www.treasury.gov.
U.S. economic data:Several reports, to be released this week, will offer insight into different aspects of the U.S. economy, including inflation, employment, real estate and oil supply.
Circle these dates
- Nov. 26: U.S. Thanksgiving (U.S. markets closed)
- Dec. 9: Bank of Canada interest-rate announcement
- Dec. 15-16: U.S. Federal Reserve meetings and statement
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