Presidential Debate, Jobs Report Could Yield Another Choppy Week

After a bumpy ride through four trading sessions, stocks closed the week on a positive note Friday as the major indexes rallied into the weekend. Markets seem to be feeling their way through a bit of a fog, as investors await clarity on several fronts. The death of Supreme Court Justice Ruth Bader Ginsburg is setting up another political showdown on Capitol Hill, the prospect of disputed election results and the final stretch of the campaign (the first debate is tomorrow) are all ratcheting up political uncertainties. Last week, Federal Reserve Chairman Jerome Powell warned there is real downside risk to this better-than-expected recovery if there isn’t additional fiscal support.

Meanwhile, coronavirus cases are accelerating again in the UK and France, while top doctors here in the U.S. are warning of a difficult fall. The economic data continue to trend in the right direction, but another round of quarterly corporate earnings is right around the corner.

As a result, there’s bound to be choppiness heading into fall with so many variables for markets to sort through. However, like always, we recommend investors remain focused on their long-term goals as defined through a comprehensive financial plan. The coming months are but a blip if you’re focused on building wealth over decades.

WALL STREET WRAP

U.S. Recovery Continues, Eurozone Decelerates: U.S. companies posted another solid rise in business activity in September, although at a slightly slower pace than in August. The IHS Markit Flash U.S. Composite PMI index came in at 54.4 in September, a hair below 54.6 in August (anything above 50 indicates activity is expanding). However, the index’s quarterly average was the highest since the opening three months of 2019. New orders grew for the second month in a row and at the fastest rate since February 2019, likely linked to strong business growth at service providers. While firms remain optimistic about the next 12 months, the pandemic and now election uncertainty are weighing on sentiment.

In the Eurozone, business activity has slowed across the region with a few sectors-based or country exceptions bucking the trend. The IHS Markit Flash Eurozone Composite PMI reached 50.1, a three-month low. Manufacturing in the Eurozone, led by Germany, rebounded to a 25-month high, but that was tempered by a deceleration in the services sector linked to a rise in coronavirus cases. The data show a two-pronged recovery in the region, with factories reporting production growth and rising demand while face-to-face consumer businesses are struggling with consumers’ virus concerns.

Businesses Are Buying: Orders for capital goods increased more than expected in August, which points to a recovery in business spending on equipment. Orders for non-defense capital goods excluding aircraft, widely viewed as a proxy for business capital spending plans, rose 1.8 percent last month. Data for July was also revised upward, showing an increase of 2.5 percent versus 1.9 percent. Orders last month were boosted by demand for machinery, computers and electronic products.

We spend a lot of time here tracking consumer spending, but capital spending is worth checking in on periodically. It shows that businesses are beefing up their capabilities to meet demand. And when businesses purchase equipment it, of course, creates jobs for manufacturers building it. But, over time, companies investing in their business can also be an indication that they plan to hire more workers, as well.

Another Go at Stimulus: Following months of failed negotiations, Democrats are trying to pass a new, scaled-down stimulus proposal. The anticipated price tag: $2.4 trillion. The White House has indicated it would support spending as much at $1.5 trillion, while Senate Republicans have said they wouldn’t back a plan of that size. The proposal comes in the same week Fed Chairman Jerome Powell said that, in addition to getting the virus under control, more fiscal support is needed. 

“There is downside risk probably coming if some form of that support doesn’t continue,” Powell said Thursday during testimony to the Senate Banking Committee.

The Latest on the Coronavirus Fight: Here’s a quick collection of some of the latest developments on vaccines, treatments and other efforts to contain the pandemic.

• Johnson and Johnson is launching a large-scale trial of its single-shot vaccine, with 60,000 people partaking in the study. Non-peer-reviewed results from an earlier trial show 98 percent of participants produced a strong immune response against the virus. 
• The FDA is releasing new, more stringent standards for an emergency authorization of a vaccine, in part to combat eroding public confidence in the safety of an expedited approval. The Pew Research Center indicated the number of people who said they would take the vaccine if it were available today dropped from 72 percent in May to just over 50 percent today.
• The UK announced it will begin the world’s first “human challenge” trials in which healthy volunteers are inoculated with a vaccine and then intentionally infected with the coronavirus a month later to its effectiveness. The government-funded studies are set to begin in January.

THE WEEK AHEAD

Election Weary? This week we’ll get a check-up on consumer confidence in September. In addition to the pandemic, we’re starting to see the election color how business owners and consumers feel about the road ahead. Additionally, we’ll want to see if the stalemate in Congress regarding another round of stimulus is creeping into the outlook. Last month consumer confidence fell to its lowest point in 6 years.

A New Batch of Unemployment Data: This week will be packed with a new round of labor market data from September. The unemployment rate is expected to remain just above 8 percent, but we’ll be digging into the report to glean more deeper insights beyond the headlines. Markets, as they have been for months, will be closely watching the numbers come Friday.

Elections and the Business Cycle: With the debate Tuesday and election news dominating the airwaves, we encourage you to read our recent analysis on presidential elections and future market returns under Democrat and Republican administrations. The big takeaway? The point in the business cycle when a president assumes office tends to be a better indicator of future market returns than whether that person is a Democrat or a Republican. That’s why, throughout this election season, we urge investors not to overweight election outcomes and politics in their investment calculus.

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