US equity markets failed to win for five consecutive days, closing pot to pot to end a tumultuous week. The turmoil in the political arena did not spread to the stock markets, which was unexpected. Volatility was docile. Investors had a pretty clear idea of how this week was going to go, and they rushed into key areas of the equity and cryptocurrency markets with patriotic enthusiasm. Most of the global markets have grown this week as well, as the planet may be ready to go through this election.
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At the end of the week, the S&P 500 and Nasdaq were up 7.3% and 9%, respectively, while the Dow was up 6.9%. For the S&P 500, it was the biggest election week gain since 1932 for all of you ID holders.
Outside the Capitol markets, the economy continues to flash red. The October employment report was better than expected but still shows how far it has to go to get back to where it was. This will be the challenge for the next administration.
October Work gains shows promise, but many challenges
Lost in the noise of the election is the persistent challenge of American unemployment. This has eased slightly over the past month as US employers added 638,000 jobs, beating the forecast of 530,000, with job gains in some of the hardest hit sectors (chart above)
The unemployment rate fell to 6.9%, down one percentage point from the September reading of 7.9%, while the number of unemployed fell by 1.5 million to 11.1 million. Although both measures have declined for the sixth consecutive month since spring, they are still nearly double their February levels. The number of long-term unemployed – those without work for 27 weeks or more – continued to increase, reaching 3.6 million people, or 32.5% of the total unemployed.
Unemployment still uneven by race
Unemployment by race continues to show an uneven recovery in the labor market. While the unemployment rate fell across all major work groups in October, black unemployment, at 10.8%, is 40% higher than that of white workers.
The unemployment rate of black workers remains above the peak of the overall unemployment rate in the Great Recession, and it took a full decade for the unemployment rate of blacks to drop below 10% after the Great Financial Crisis.
Not so much WFH
The idea that everyone works from home was again disproved in the October job report. According to the BLS, only 21.2% of workers reported having teleworked or worked at home in the past four weeks due to the pandemic – fewer than one in four workers. Either people are slowly returning to their offices or they are simply not working.
Following the money this week
This week proved to be a fascinating study of investor behavior as seen through the flow of assets between ETFs. I will try to summarize what was happening within these sectors and asset classes given what emerged this election week:
Treasury yields falling
Treasury yields fell after the election as the market digest the narrative that a divided Congress could likely mean a smaller stimulus package, whenever it comes, no matter who wins the Oval Office. Treasury bond yields are strongly correlated with economic growth potential and a large stimulus package would have brought that with it. See the TLT ETF above.
Growth versus value
Tech stocks are back this week for a few reasons. A divided Congress means a large corporate tax hike is less likely, and these tech companies love low taxes. The lack of a giant stimulus law means that investors will be looking for growth stocks to drive market returns once again. Everyone on board! See the QQQ ETF above.
Emerging markets are on the rise
Emerging market equities are getting some love after the election as the dollar weakens and investors start making a bigger bet on Biden’s victory. Foreign policy is largely driven without major input from Congress, and a Biden presidency is perceived as less confrontational with China, the dominant weight in the emerging market equity index. See the VWO ETF above.
We know the Affordable Healthcare Act will not be dismissed at this point, and major health care reform is a priority for which Biden probably should have vetted both chambers of Congress in order to implement meaningful change. The status quo has been good for health insurers and that industry has had a great week. Check out the IHF ETF above.
The solar and renewable energy sector was a major player in the election as many investors bet on a blue wave. When it became clear that it was not likely to manifest, those actions were hollowed out. But as Biden’s numbers have improved, investors have moved closer to the industry. If he wins, he may not have the muscle to execute his multi-billion dollar green energy plan, but the money will continue to flow into that industry. Check out the TAN ETF above.
And then, there is Bitcoin. Cryptocurrency loves chaos, so it’s a perfect fit for this week. As I said, it is the best performing “asset” in 2020, but also the most volatile. There has been a lot of buzz around cryptography from central banks to money managers like Fidelity and payment companies like Square and PayPal. It is also valuable, as there are only 21 million bitcoins. Check out the BTC Grayscale Bitcoin Trust, above.