- Weekly global market focus
- Final U.S. election outcome must wait until after the two Senate seat run-offs in Georgia on Jan 5
- Stimulus bill during lame-duck session remains uncertain
- U.S pandemic continues to surge to record highs
- Q3 earnings season winds down
Weekly global market focus — The U.S. markets this week will focus on (1) uncertainty about control of Washington and the Senate as the markets are forced to wait until two more Senate seats are called in North Carolina and Arizona and until after two Senate seat run-offs are held in Georgia on January 5, (2) speculation about the policy and regulatory direction by President-Elect Biden and who he will pick for key economic posts such as Treasury Secretary, (3) the economic impact of the pandemic surge in the U.S. and Europe, (4) the Treasury’s $122 billion refunding operation, and (5) the tail end of Q3 earnings season with reports from 15 of the S&P 500 companies.
In Europe, the focus will be on Brexit negotiations, with only six days left until the self-imposed deadline of this Sunday (Nov 15). The two sides still have major differences, but the markets seem to expect a last-minute agreement.
The focus in China will be on the new political landscape in Washington with incoming President-Elect Biden. China may see less pressure from tariffs but more pressure from a multi-lateral standpoint.
Final U.S. election outcome must wait until after the two Senate seat run-offs in Georgia on Jan 5 — Joe Biden was called as the new president-elect on Saturday after he clinched Pennsylvania. While Mr. Biden seems virtually certain to become the next president, Mr. Trump refused to accept the results of the election and promised lawsuits. Also, there are still some ballots to be counted and there will be recounts in some states.
The key upcoming dates for finalizing the the election are December 14, when members of the Electoral College meet to officially vote for president and vice president, and January 6, when Congress will formally count the electoral votes and declare a winner. Inauguration Day is January 20. The new Congress will convene on January 3.
Last week’s Senate voting outcome, as of Sunday evening, was at 48 seats for the Republicans and 48 seats for the Democrats, with seats in North Carolina and Alaska not yet called. The winner of the Senate seat in Alaska may not be known for a week or more because Alaska won’t even start counting its mail-in ballots until tomorrow and only 49% of the vote has been counted so far. The winner of the North Carolina Senate race seems likely to go to the Republican incumbent Tillis. The last two Senate seats will be determined by two run-off elections in Georgia on January 5.
Democrats could still pull off control of the Senate if they get at least two of the four seats yet to be determined in Alaska, North Carolina, and Georgia. If Democrats can get two more Senate seats, then they will have 50-50 control of the Senate since Vice-President-Elect Kamala Harris can cast the tie-breaking vote in the Senate for the Democrats.
However, Democrats face an uphill battle to win control of the Senate. The betting odds at PredictIt.org, for whatever they are worth, are predicting 78% odds that Republicans will end up with control of the Senate after all is said and done, and only 25% odds that Democrats will take control of the Senate.
Due to the outstanding Senate seats, there is still some uncertainty about whether Democrats will have full control of Washington in January. Based on the PredictIt.org odds for Senate control, the odds are only 25% for a Democratic sweep of Washington and implementation of the blue-wave agenda. There are much higher odds of 78% that a Republican Senate will be able to block President-Elect Biden’s agenda, including tax hikes and stimulus measures.
Stimulus bill during lame-duck session remains uncertain — The markets this week will be carefully monitoring statements by Pelosi-McConnell and the White House to gauge the odds for a stimulus bill during the lame-duck session. The political landscape remains highly uncertain because it is not yet clear which party will control the Senate in January.
There is an outside possibility of a stimulus bill during the lame-duck session if Speaker Pelosi and Senate Majority Leader McConnell can agree on the size and contents of a bill. The size of any such Pelosi-McConnell bill would likely be between $500 billion and $1 trillion, down sharply from Ms. Pelosi’s last demand of $2.4 trillion. It remains to be seen whether President Trump would push for a stimulus bill during the lame-duck session.
U.S pandemic continues to surge to record highs — The pandemic has reached record highs and seems destined to get even worse as winter approaches with no vaccine as yet. The U.S. on Saturday saw a daily record of 126,156 new Covid infections and 1,013 deaths, according to the New York Times. The U.S. 7-day average of new Covid infections is now at a record high near 110,000 and rising fast, according to Johns Hopkins. European countries are also seeing record highs, although new restrictions may start to curb the infection rate in coming days.
Q3 earnings season winds down — Q3 earnings season is winding down with reports this week from only 15 of the S&P 500 companies. Notable reports this week include McDonalds and Norwegian Cruise Lines on Monday, and Cisco Systems and Disney on Thursday.
The consensus is for S&P 500 earnings growth in Q3 of -7.8% y/y (-3.7% y/y ex-energy), according to Refinitiv, which is much better than the pre-release consensus (as of Oct 1) of -21.4%. Looking ahead, the consensus is for SPX earnings growth of -11.1% in Q4, leading to an overall earnings decline for 2020 of -16.0%. The consensus is for SPX earnings to then grow by +23.2% in 2021.
