Market Strategy 11/09/2020
- November 9, 2020
The Way You Do the Things You Do
US voters appeared to favor a softer, less controversial and more conventional presidential style
Key Takeaways
- A broad stock rally boosted equity prices across the globe and among market cap segments last week.
- A combination of election results in the US, strong economic data, corporate earnings results that often exceeded expectations, and reassuring comments from the Fed favored riskier assets.
- The likelihood that Republicans will remain in control of the Senate softened the incumbent’s loss for many of his supporters.
- With the election behind us, the focus increases on resolving the Congressional gridlock to get another fiscal rescue package enacted.
The post-election week here in the US could provide greater clarity as to when to expect a final resolution to the 2020 election. By being declared winner in Pennsylvania, Biden passed the threshold of 270 Electoral College votes needed to capture the presidency. President Donald Trump is weighing legal challenges and has so far refused to concede.
Election week had plenty of noise and action for investors to parse through with the biggest surprise we’d think for both sides being just how close an election it turned out to be. Once again professional pollsters as a group missed the mark on how far ahead or behind either candidate was in various venues around the country. An amateur observer could likely have set them straight early on had they been asked.
Folks in the US remain pretty much divided down the middle when it comes to their political opinions. Don’t we all know it as we “pussy foot” around friends and family trying to avoid political chatter that can escalate into real tensions without notice.
In fairness to the pollsters, from what we could tell from speaking with a diverse group of investors on a regular basis is that supporters of the President were simply too private to share their voting intentions with a stranger calling on behalf of a polling organization while in some communities there were Trump supporters who were wary of revealing their choice to a stranger as a result of the violence and looting that broke out in a number of cities and communities over the summer.
What appears clear so far is that the equity markets are not adverse to a change of administration stateside at least so long as the Republicans maintain control over the Senate.
For now like The Dude in the movie The Big Lebowski we find it practical and sensible to “abide” with what’s widely known so far: including the spontaneous street celebrations in many cities including New York by Biden supporters and the challenges to the results of the election coming from the President and his administration since Election Day.
What appears clear so far is that the equity markets are not averse to a change of administration stateside at least so long as the Republicans maintain control over the Senate. Checks and balances “on the Hill” have been known to be important to investors over the course of history. The present in our view is no exception. That last bit adds a “chad” of uncertainty for the markets to consider in the weeks ahead with the two runoff elections for those two Senate seats in Georgia scheduled for January 5—just 15 days before Inauguration Day (January 20, 2021).
Equity Markets Rallied after the Vote
Last week saw the S&P 500 deliver its second best election week performance in its history (best since 1932 according to Barron’s) even as the chances for the incumbent to get re-elected faded and the Democrats racked up the votes through and after Election Day as the vote count continued into the weekend.
On the week the Dow Jones Industrial average, S&P 500, the S&P 400 (mid-caps), the Russell 2000 (small- caps) and the NASDAQ Composite (with over 40% weighted in tech or tech related stocks) respectively gained: 6.9%, 7.32%, 6.74%, 6.87% and 9.01%.
It wasn’t just the election’s suggestion that the Republicans could retain control of the Senate that underpinned the market last week but continued better than expected Q3 results by companies in the S&P 500, economic data tied to job gains and a sharp decline in the unemployment rate. The ISM surveys showed businesses gaining confidence and new orders rising. In addition the outcome from the Fed’s FOMC meeting reinforced the Fed’s commitment to see the US economy through the challenges that remain from the Covid-19 pandemic crisis.
As we entered the new week ahead of Monday’s opening in New York equity futures were again on the rise and the dollar lost ground to a number of currencies. The yield on the 10-year Treasury which closed last Friday to yield 0.818% edged modestly higher on Sunday evening. With a little more than 12 hours ahead before the opening in New York we will avoid “counting our chickens until they hatch.”
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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