U.S. equity markets couldn't make it five days in a row of gains, closing flat-to-lower to end a tumultuous week. The tumult in the political arena did not spill over into the equity markets, which was unexpected. Volatility was tame. Investors had a pretty good sense of how this week would play out, and rushed into key areas of the stock and cryptocurrency markets with patriotic enthusiasm. Most global markets rose this week as well, as the planet may be ready to move on from this election.
This article is an excerpt from our free The Market Sum newsletter. Sign up here to receive it in your inbox daily.
At week's end, the S&P 500 and Nasdaq jumped 7.3% and 9%, respectively, while the Dow rose 6.9%. For the S&P 500, it was the biggest election week gain since 1932 for all you record keepers.
Outside of the Capitol markets, the economy is still flashing red lights. The October jobs report was better than expected, but still shows how far it needs to go to get back to where it was. That will be the challenge for the next administration.
October Job Gains Show Promise, but Many Challenges
Lost in the noise around the election is America's persistent unemployment challenge. That eased a bit on the last month as U.S. 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 September’s reading of 7.9%, while the number of unemployed people fell by 1.5 million to 11.1 million. While both measures declined for the sixth consecutive month since the spring, they are still nearly twice as high as February levels. The number of long-term unemployed - those out of work for 27 weeks or more - continued to increase, totaling 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 declined among all major working groups in October, Black unemployment at 10.8%, is 40% higher than it is for White workers.
The unemployment rate for Black workers remains higher than the peak of the overall unemployment rate in the Great Recession, and it took a full decade for the Black unemployment rate to go below 10% after the Great Financial Crisis.
Not So Much WFH
The notion that everyone is working from home still was disproven in the October jobs report. According to the BLS, only 21.2% of employed people reported having teleworked or worked at home in the last four weeks because of the pandemic—less than one in four workers. Either people are slowly moving back into their offices, or simply not working.
Following the Money this Week
This week has proven to be a fascinating study of investor behavior as seen through the flow of assets across ETFs. I'll try to summarize what was happening inside these sectors and asset classes given what transpired this election week:
Treasury Yields Down
Treasury yields are down post-election as the market digests the narrative that a divided Congress could likely mean a smaller stimulus package, whenever it does come, and no matter who wins the Oval Office. Treasury yields are strongly correlated to economic growth potential, and a big stimulus package would have brought that with it. See the TLT ETF above.
Growth over Value
Tech stocks made a comeback this week for a few reasons. A divided Congress means a big corporate tax increase is less likely, and these tech companies love low taxes. The lack of a giant stimulus bill means investors will be looking for growth stocks to lead market returns yet again. All aboard! See the QQQ ETF above.
Emerging Markets Rise Up
Emerging markets equities are receiving some love post-election as the dollar weakens and investors begin to make a bigger bet on a Biden victory. Foreign policy is largely driven without major input from Congress, and a Biden presidency is perceived to be less confrontational with China, the dominant weight in the emerging markets equities index. See the VWO ETF above.
We know that the Affordable Healthcare Act is not going to be thrown out at this point, and major healthcare reform is one priority for which Biden likely would have needed to control both chambers of Congress in order to enact significant change. The status quo has been good for health insurers, and that sector had a hige week. Check out the IHF ETF above.
The solar and renewable energy sector was one of the hottest leading into the election as many investors bet on a blue wave. When it became clear that it was not likely to manifest, those stocks got flushed. But as Biden's numbers have improved, investors have re-warmed to the sector. If he wins, he may not have the muscle to execute his multi-trillion dollar green energy plan, but the money will still flow into that sector. Look at the TAN ETF above.
And then, there's Bitcoin. Cryptocurrency loves chaos, so it fit right in this week. As I've mentioned, it's the best performing "asset" in 2020, but also the most volatile. There's been a lot of buzz around crypto from central banks to money managers like Fidelity, and payment companies like Square and PayPal. It's also precious, in that there are only 21 million bitcoin in existence. Check out the BTC Grayscale Bitcoin Trust, above.