- Weekly global market focus
- Election odds remain in Democrat’s favor but anything can happenÂ
- McConnell says no stimulus bill until 2021
- Q3 earnings season remains in high gear
- U.S. ISM manufacturing index expected to remain in respectable shape
Weekly global market focus — The U.S. markets this week will focus on (1) the outcome of tomorrow’s U.S. election, (2) the extent of the economic fall-out from the pandemic surge in the U.S. and Europe, (3) the prospects for a stimulus bill during the lame-duck session, (4) the second biggest Q3 earnings week with reports from 139 of the S&P 500 companies, (5) anticipation of the 2-day FOMC meeting that ends on Thursday, and (6) a busy economic calendar this week with headline reports including today’s ISM manufacturing index (expected +0.4 points to 54.4) and Friday’s Sep unemployment report (payrolls expected +600,000 and unemployment rate expected -0.2 to 7.7%).
In Europe, the focus is on the economic fall-out from the worsening pandemic and new lockdown measures. The Brexit talks are expected to continue this week with a soft deadline of mid-November. The Bank of England, at its meeting on Thursday, is expected to expand the capacity of its QE program.
In Asia, the markets will focus on the implications of tomorrow’s U.S. election for U.S./Chinese relations. China’s Oct PMI reports on Saturday were slightly better than expected, with the manufacturing index falling -0.1 to 51.4 (vs expectations of -0.2) and the non-manufacturing index rising +0.3 to 56.2 (vs expectations of +0.1).
Election odds remain in Democrat’s favor but anything can happen — The markets are extremely uncertain about tomorrow’s election, both from the standpoint of the winner as well as whether there is a disputed election. In one sense, the stock market will be relieved no matter who wins if the winner is clear before Wednesday’s stock market open and the losing candidate concedes. On the other hand, the markets recognize that there is the possibility of a disputed election and drawn-out court battles, where a clear winner isn’t determined for days or potentially even weeks.
Regarding the outcome of the election, the polling and the betting odds continue to favor the Democrats. However, the polling and the betting odds could simply be wrong, like they were in 2016. Going into election day in 2016, the betting odds were 82% in favor of Hillary Clinton and 22% for Donald Trump. Also, the odds of the Republicans keeping control of the Senate in 2016 were below 50% at 46%, and yet the Republicans beat the odds to stay in control of the Senate. The betting odds were more accurate in the 2012 election, with the odds going into election day at 66% for Obama and 34% for Romney.
The betting odds for tomorrow’s presidential election, for whatever they are worth, are currently at 65% for former VP Biden and 41% for President Trump, according to PredictIt.org. The betting odds are at 63% for Democrats taking control of the Senate versus 41% for Republicans. Democrats continue to have strong odds of 88% for retaining control of the House versus 16% for Republicans.
The election is already more than half over regardless of how high the turnout might get, since 93 million people have already cast their ballots, according to the University of Florida’s U.S. Elections Project. That is 67% of the 138 million votes that were cast in the 2016 election.
McConnell says no stimulus bill until 2021 — Senate Majority Leader McConnell last Friday said that he does not expect to take up a stimulus bill until the new session of Congress begins in January, which suggested that he will block a stimulus bill during the lame-duck session. That is contrary to Speaker Pelosi’s hope for a stimulus bill during the lame-duck session of Congress. The politics for the stimulus bill during the lame-duck session will depend heavily on the outcome of tomorrow’s election. Congress also has the complication that they must pass a spending bill to keep the government operating past December 11 when the current continuing resolution expires.
U.S. pandemic reaches record high — The pandemic is surging to new record highs with no end yet in sight with the current level of restrictions. There was a record of 97,000 new U.S. Covid cases last Friday. The 7-day average is now at a record high of 87,000 and rising, according to Johns Hopkins. States are being forced to impose new restrictions to prevent their health care systems from being overwhelmed. Europe already started locking down last week as the pandemic surges across most of Europe.
Q3 earnings season remains in high gear — Q3 earnings season remains in high gear this week with reports from 129 of the S&P 500 companies. Notable reports this week include Berkshire Hathaway and Paypal on Monday; Humana and Prudential Financial on Tuesday; Expedia, Qualcomm, Allstate, and Marathon Oil on Wednesday; Regeneron, GM, Electronic Arts on Thursday; and T-Mobile and Take-Two Interactive on Friday.
The consensus is for S&P 500 earnings growth in Q3 of -10.2% y/y (-6.0% y/y ex-energy), according to Refinitiv. Looking ahead, the consensus is for SPX earnings growth of -12.1% in Q4, leading to an overall earnings decline for 2020 of -17.5%. The consensus is for SPX earnings to then grow by +24.9% in 2021.
U.S. ISM manufacturing index expected to remain in respectable shape — The consensus is for today’s Oct ISM manufacturing index to show a +0.4 point rise to 55.8, recovering part of Sep’s -0.6 point decline to 55.4. The ISM manufacturing index remains in respectable shape at 55.8, which is well above the expansion-contraction level of 50 and indicates that manufacturing executives are relatively optimistic about the near-term outlook. However, the pandemic surge is likely to undercut manufacturing confidence in coming weeks due to increased restrictions.
