Of course, the election is first and foremost on the minds of most Americans and especially investors. However, the coming week will be much more than just the election. It is a "huge week" for investors with a Fed decision, 128 companies in the S&P reporting earnings, October payrolls, ongoing pandemic lockdowns, and a much more economic data as well.
As we have written with regard to the election, there is no consensus this time around whether a Trump or Biden victory would be better for the financial markets. However, if there is a “blue wave” meaning a Biden Presidency and Democrats getting a majority in the Senate, most observers agree that would be bullish for stocks. The reasoning behind this is an expectation that there would be little resistance to new stimulus measures. Over 90 million have already voted which is 67.7% of 2016’s total and it doesn’t appear to us that there is an obvious outcome. We said a couple weeks ago that the financial world seemed pretty calm which looked like the market, if nothing else, was confident that the winner would be declared on Nov 3rd. Now that appears to be off the table with an aggressive selloff in stocks last week. So now it doesn’t look like anyone really knows what is going to happen.
Later this week, on Thursday, both the Federal Reserve and the Bank of England will be announcing their latest monetary policy decisions. Starting with the Fed, the central bank is expected to remain in a holding pattern this meeting but may lay groundwork for action at future ones. Undoubtedly there will be discussion of the necessity for fiscal stimulus in addition to the monetary stimulus the banks have already provided. For the Bank of England meeting also on Thursday, most economists expect a dovish committee, with the November Monetary Policy Report highlighting further downside risks to the UK and the external growth outlook. They also see the majority of the MPC voting for additional stimulus, with £60bn added to the Bank's Asset Purchase Facility. The latest lockdown could easily see this increased or see the probability of greater action.
With regards to economic data, the final October global manufacturing PMIs continue today in addition to the U.S. ISM reading. Then, services and composite PMIs on Wednesday and Thursday. Also, on Wednesday, we will see October inflation data for the Euro area. The week will end with U.S. October payrolls and unemployment data on Friday.
We also have a big earnings week with a total of 128 companies in the S&P 500 reporting by Friday, along with 96 companies from the STOXX 600. In terms of the main highlights, today we’ll hear from Siemens, Clorox, Estee Lauder, PayPal Holdings and SBA Communications. Then on Tuesday, we’ll get releases from BNP Paribas, Bayer, Ferrari, Johnson Controls International, Humana, and Eversource Energy. Wednesday then sees reports from Danske Bank, Consolidated Edison, Vestas Wind Systems, QUALCOMM, MetLife, Allstate Corp and Public Storage. Then on Thursday, releases include Bristol-Myers Squibb Co, Zoetis, Linde, AstraZeneca, Regeneron Pharmaceuticals, Microchip Technology, Electronic Arts, American International Group and T-Mobile US. Lastly, on Friday, there’s Hershey, Allianz SE, CVS Health Corp and Marriott International.
Source: Deutsche Bank, BofA, Goldman
A notable peculiarity that has emerged in the markets is the difference in opinions of the speculative funds. The aggressive traders are quite bullish on tech stocks, yet bearish on the long bond. We mentioned a couple weeks ago that the speculative funds were really selling bonds on the long end of the curve expecting interest rates to go higher. We also mentioned that we didn’t see the logic in interest rates going a lot higher at this point. Since that time, the funds have ADDED to their position expecting interest rates to go higher and it is now a new all-time record.
With all the “stimulus” the Federal Reserve has provided, we find it difficult to believe that they will stand aside and let the 30-year treasury bond market sell off. When the funds have already sold so much, we are wondering now how many sellers are left – we think there will be some buyers coming into the market! The Federal Reserve has no choice but to continue to manipulate interest rates down – if they don’t, it will be a dark winter.
Regards and good investing!