Weekly Market Digest: All Eyes on Stimulus

All eyes on stimulus. For the second week in a row, optimism over another fiscal stimulus package was the primary narrative driving equities higher. The only day markets fell was Tuesday, immediately following President Trump’s tweet to call off negotiations until after the election. He quickly backtracked though, and stocks resumed their upward rally. Bonds were slightly down and the dollar weakened.

Weekly Returns

S&P 500: 3,477 (+4.1%)
FTSE All-World ex-US (VEU): (+3.1%)
US 10 Year Treasury Yield: 0.79% (+0.09%)
Gold: $1,929 (+1.4%)
EUR/USD: $1.183 (+1.0%)

Major Events

• Monday – Press Secretary Kayleigh McEnany was the latest White House personnel to test positive for COVID.
• Monday – President Trump left Walter Reed Medical Center, choosing to continue his COVID recovery at the White House.
• Tuesday – Fed Chairman Jerome Powell once again pleaded for additional fiscal stimulus, stating there could be tragic economic consequences without it.
• Tuesday – President Trump tweeted that he is stopping all fiscal stimulus negotiations until after the election.
• Wednesday – Fed Minutes showed a desire to further assess the central bank’s asset purchase program at future meetings.
• Wednesday – Kamala Harris and Mike Pence participated in the only Vice Presidential debate before the November election.
• Thursday – Thirteen men were arrested for a plot to overthrow Michigan’s government, kidnap the governor and try her for treason.
• Thursday – President Trump stated he would not participate in the next debate if it was virtual.
• Friday – The White House proposed a new $1.8 trillion fiscal stimulus package, set to be discussed between Treasury Secretary Mnuchin and House Speaker Nancy Pelosi.

Our Take

No one can reliably predict election results (as 2016 taught us all), but as of now Biden enjoys a healthy lead over Trump in most polls. This would suggest it is in President Trump’s best interest to get a deal done soon to try to boost his approval ratings and reelection odds. It is likely what caused him to reverse course during the week and come back with a larger stimulus proposal. What’s more, only hours after announcing the $1.8 trillion plan, he claimed he’d like a bigger plan than both the Democrats or the Republicans are offering, potentially scuttling his own proposal from earlier in the day.

A larger plan would likely face resistance from Senate Republicans though, and there still appear to be gaps as to what should be included. Both sides seem to agree on airlines receiving funding, but there is disagreement on extended unemployment benefits as well as funding for state and local governments.

Either way, additional fiscal stimulus is likely needed. We will have to reckon with the resulting deficit at some point, but that is an issue for another day. Despite some improvement, the economy is still in a fragile state. Millions are out of work, and according to Yelp almost 100,000 businesses have permanently closed, and that number is rising. We believe additional fiscal support is necessary to prevent more permanent damage and help those in need get back on their feet. Time will tell whether Congress and the White House can come to an agreement.