For stock prices this week, hopes for a stimulus package outweighed news that President Trump contracted Covid-19 and slowing job growth. The House passed a $2.2 trillion package, but an agreement with the Senate remains elusive. House Speaker Pelosi said that negotiations with the White House continue and expressed optimism heading into the weekend.
S&P 500: 3,358 (+1.8%)
FTSE All-World ex-US (VEU): (+1.6%)
US 10 Year Treasury Yield: 0.69% (+0.01%)
Gold: $1,902 (+2.2%)
EUR/USD: $1.171 (+0.7%)
- Monday – Uber won an appeal to reinstate its operating license in London.
- Monday – United Airlines reached an agreement with pilots to cut schedules to avoid nearly 3000 furloughs. The airline is still planning to cut 13,000 jobs.
- Tuesday – A contentious first presidential debate left many disappointed and produced no clear winner, though many believe President Trump’s aggressive tactics may have alienated key undecided voters.
- Wednesday – Palantir and Asana completed successful IPOs, adding to this year’s record value of issuance of shares.
- Thursday – The House passed a $2.2 trillion stimulus package, but the bill is not expected to get through the Senate.
- Thursday – President Trump announced he and the First Lady tested positive for Covid-19.
- Friday – The U.S. added less jobs than expected in September. Unemployment dropped to 7.9%, partially driven by people who stopped looking for work.
The news that President Trump has contracted Covid-19 is a stark reminder the disease is spreading and is likely still in its early phases. While the situation is highly concerning, the relative lack of initial market reaction was interesting. It is unclear what the diagnosis means for the election, but we continue to note the market has not reacted to swings in the polls and does not seem to significantly prefer either candidate. A modest drop in the market on Friday was tied to a seemingly random bout of selling pressure on high momentum technology stocks, which is something that happened periodically through September and is likely primarily driven by quantitative trading algorithms.
The overall rise in stocks this week may be attributable to increasing optimism for a second stimulus package. Direct stimulus checks, effectively helicopter money, provide a sugar high for the economy and help many families in need. Evidence suggests the first round was spent relatively quickly by those with little savings and mostly saved by those with meaningful existing savings.
At some point, repeatedly giving large sums of money away has consequences. There is probably significant runway left in terms of how much debt the government can assume before investors balk at near zero interest rates, but it is not unlimited. The economy is still in shock but is slowly recovering so how much additional stimulus to provide is an interesting debate, which comes with significant political implications as we approach elections.
The first round of stimulus was appropriate and probably helped avoid a more prolonged recession. The appropriate scope for a second round is less clear, as evidenced by the challenges in reaching agreement, though both sides appear wanting to get something passed.