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Gone viral. Stocks slid on Friday after the President announced that he was infected with COVID-19. News of the President’s health overshadowed news about jobs and reported progress on a new stimulus bill.
N O T E W O R T H Y
What’s the matter? It dominated our minds, the dinner conversations, and news channels all weekend long. The President is stricken with that feared virus that has killed over 1 million people globally, 209,000+ in the US alone. News of the President’s illness led even his most staunch opponents to find their inner senses of humanity to wish him and the First Lady well, withdrawing from rancorous political bickering, if for at least a day. After the markets closed, President Trump was flown to the Walter Reed Medical Center, “out of abundance of caution”. Saturday was a chaotic news day as the press scrambled to report the President’s progress amidst conflicting information from his doctors, his staff, and the President himself. The latest reports have him at a greatly improved level of health with the potential to be discharged as early as today. Whether traders were for or against Donald Trump was not the issue at hand, but rather an increased level of uncertainty about the future. While the President’s health certainly matters, what will really drives markets is the health of the economy. So where do we stand on that? On Friday, the monthly employment numbers came out and they were largely overshadowed by the news from the Whitehouse. Those numbers showed that new hires came in less than economists’ expectations. Digging deeper, the numbers showed that the miss was due to a slowdown in Government hiring while private sector job growth was in line with estimates. The Unemployment Rate came in at 7.9%, which was lower than expected. Unfortunately the lower rate was due to a decrease in labor force participation, which means that some folks stopped looking for jobs. While the employment situation is clawing its way back slowly, there are still 10.1 million less Americans employed than in February. We have a long way to go. Looking at some of the higher frequency data, we observe that while the recovery is under way, it may be slowing. While weekly initial jobless claims are slowing, the numbers remain quite high and as PPP funding dries up, more layoffs will surely come. Restaurant bookings have improved but remain roughly around where they were 1 month ago. Public transit utilization in New York, LA, and Chicago is around half of where it was pre-pandemic while airline traffic is only 33% of where it was 1 year ago. Consumers remain cautiously optimistic according to the timely University of Michigan Sentiment indicator. Sentiment about current conditions is up slightly from 87.8 from 87.5 while expectations about the next 6 months have climbed to 75.6 from 73.3. While the sentiment metrics have been improving, these levels are significantly lower than the levels leading up to the pandemic. That brings us to the lawmakers on Capitol Hill. With the recovery underway and faltering slightly, a second fiscal stimulus package would certainly increase the chances of further gains. On Friday, Democratic leadership appeared upbeat about a deal and the President appears to be motivated to make an agreement. An agreement between lawmakers over a follow-on package would certainly eliminate some of the unknowns being digested by the markets. The President’s hopeful recovery will also help a great deal. That leaves us to contend with the election… no worries.
THE MARKETS
Stocks faltered on Friday on news of the President’s announcement that he contracted COVID. Upbeat news from the Speaker of the House helped push markets up, but ultimately indexes closed in the red lead by the technology shares which dominate them.
The S&P500 gave up -0.96%, the Dow Jones Industrial Average lost -0.48%, the Russell 2000 Index rose by 0.53%, and the Nasdaq Composite Index sank by -2.22%. Bonds gave up some ground and 10-year treasury yields added +3 basis points to 0.70%.
NXT UP
- Markit US Services PMI (Sept) is expected to be 54.6 in line with prior flash estimates.
- ISM Services Index (Sept) may come in at 56.2, down from last month’s 56.9 level.
- Chicago Fed President Charles Evans and Atlanta Fed President Raphael Bostic will speak today.
- The week ahead is light with numbers and earnings. We will get JOLTS Job Openings, weekly jobless numbers, and the release of the FOMC meeting minutes. Please refer to the attached economic and earnings calendars for details.
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