United States
  • Four days of vote counting has not yet produced a clear winner in the presidential election, with the Senate in a tight race and the House won by Democrats.
  • There was no change to the policy announcement from the Federal Open Market Committee meeting, but policy makers remained consistent in their message of continued monetary support of the economy.
  • The October jobs report was encouraging on all fronts with both employment and labor force increasing, the unemployment rate falling, and permanent layoffs easing.

This weeks markets



U.S. – What a Year this Week Has Been

Financial News- Stocks and Bonds Rally, Then Take a Pause

The week has been eventful enough to fill books. Limited to one page, let’s jump right into the presidential election where no winner has yet been announced. Friday morning, Biden took the lead in Georgia and Pennsylvania. Wins in these states would put him over the edge though legal challenges appear likely to leave a cloud of uncertainty over the outcome. Meanwhile, both of Georgia’s Senate races appear be heading to runoffs, making the Republican Senate majority less certain. What is certain is that Democrats retained control of the House with a smaller majority.

With the balance of power see-sawing away from a “blue-wave” outcome, U.S. equity and Treasury markets have also been volatile. Both markets took off on the morning after the election day, seemingly pricing in less fiscal support but also a lower probability of tax increases. The S&P 500 gained 6%, while 10-year Treasuries declined by almost 13 basis points. However, Friday morning markets retraced slightly as uncertainty about the outcome in the Senate increased (Chart 1).

The biggest question on investors minds with respect to government policy is the size and scope of the next fiscal support package. Assuming a Biden win and Republican Senate, the package is likely to be smaller than the roughly $2.5 million CARES act. Still, it is likely to reinstate enhanced unemployment insurance, authorize new funds for small business and provide sector-specific support. On international trade, a Biden victory is likely to mean a more conciliatory approach with America’s traditional allies but a continued assertive stance on China.

For his part, Federal Reserve Chairman Powell, made a point of not talking about the election though he could not avoid some mention of fiscal policy. On Thursday, the FOMC left policy unchanged and made very little changes to its policy statement. As in September, it emphasized downside risks, namely the increase in covid-19 infections across the U.S. In his press conference, Powell reiterated statements he has made many times in the past about the need for fiscal policy, noting that monetary policy can only go so far in dealing with the pandemic-induced shock to household and business income. In the meantime, the Fed will not let off the monetary policy gas pedal until the recovery is much more firmly entrenched.

Financial News- Permanent Job Losses Edge Lower as Temporary Layoffs Continue Their Six Month Drop

Amidst everything else, the week was also heavy on economic data, with Friday’s job report the main highlight. October nonfarm payrolls showed another month of solid gains, rising 638,000. The improvement in the unemployment rate was even more impressive, falling a full percentage point to 6.9% from 7.9%. Just as encouraging, the report showed a rebound in the labor force participation rate and decline in the permanent job losses. Permanent job losses have been rising in the past several months, flashing warning signs of employment fragility, so an improvement on this front is welcome (Chart 2).

Still, while ongoing progress is welcome it does not negate the need for additional fiscal support, especially as virus cases continue to rise and activity in high-contact areas to be scaled back. We hope to get more clarity on what the stimulus package may look like in the upcoming weeks.

Maria Solovieva, CFA, Economist | 416-380-1195


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