U.S. equities snapped a four-week consecutive stretch of losses last week but ended on a down note following the announcement that President Trump and the first lady had tested positive for Covid-19, along with several other White House staff members and visitors. The development injected further political uncertainty a month ahead of the presidential election and piled on to the September jobs report showing positive but slowing progress in the labor market recovery. However, equities were able to hold on to gains for the week as Congress and White House officials narrowed the gap towards a deal on further fiscal stimulus. The S&P 500 and Nasdaq Composite both rose 1.5% on the week, while the Dow Jones gained more ground with a 1.9% increase. Meanwhile, bond yields have been pushed higher by the potential for further fiscal aid with 10-year Treasury yield climbing to 0.76%, its highest mark since early June.
In this week’s early trading, equity markets are rallying with the news that President Trump’s condition has shown improvement. He was released from Walter Reed Hospital on Monday evening to continue his recovery in the White House residence. Market participants will continue to monitor Covid-19 developments from the White House and the implications for the election. The most recent national poll from CNN has shown Joe Biden’s advantage widening to 16 points over President Trump, the largest lead of the cycle.
The last monthly jobs report ahead of the presidential election was a bit of a mixed bag as nonfarm payrolls rose by 661k in September, about 200k short of expectations, and job gains continued to decelerate from previous months. On the positive side, the prior two month jobs numbers were revised upward by 145k and the unemployment rate surpassed expectations, falling to 7.9% from 8.4% in August. However, the number of permanent job losses continued to tick higher, rising by 345k during September to 3.8 million, and that figure doesn’t include the latest round of announced layoffs from major airlines and other large U.S. blue-chip companies including Disney, Allstate, and Goldman Sachs. Rising permanent job losses may slow consumer spending, particularly as the country’s ability to absorb displaced workers remains below pre-crisis levels with the number of national job openings down over -5.5% from February. Personal income nationally dipped -2.7% in August following the expiration of enhanced unemployment benefits.
The week ahead will be relatively quiet from an economic calendar perspective with the released minutes from September’s Federal Reserve meeting and weekly jobless claims gathering most of the attention. On the stimulus front, House Democrats and the White House continue to negotiate toward a fifth coronavirus relief bill. Both sides have noted optimism on potential for a near-term agreement, but no details have been provided on how they are progressing on closing the $600 billion gap between their proposals, with House Democrats pushing toward a package totaling $2.2 trillion compared to $1.6 trillion from the White House. Additionally, once they have come to a consensus, the agreement would need to be approved by the Senate which had been aiming for a much smaller stimulus package.
