Market Update: Fri, Oct 2, 2020 | LPL Financial Research

Daily Insights

President Donald Trump and First Lady Melania Trump test positive for COVID-19. First, we wish the President and the First Lady a swift and full recovery. This October surprise raises the already high level of political uncertainty that markets are dealing with as Election Day approaches. Losses this morning could potentially be extended as market participants digest the news and consider the possibility that the President may not be able to fulfill his duties. However, we believe Trump’s odds of beating the virus, as the United Kingdom’s Prime Minister Boris Johnson and Brazil’s President Jair Bolsonaro did, are quite good.

It is difficult to say how this will affect the election. Markets appear to be pricing in former Vice President Joe Biden as a favorite, and this news may not change that given the limits on Trump’s ability to campaign. But the President could gain support from a quick recovery similar to the support that Prime Minister Johnson gained during his battle with COVID-19. Trump most likely will remain active on social media. In a healthy matchup, we believe this race is closer than polls indicate.

We are making no changes to our investment recommendations as a result of this news. We will continue to look for opportunities on potential weaknesses to add equities.

We will respond to your top questions surrounding today’s news later today in a special FAQ Blog Post.

Stocks open lower. Stocks sold off globally on the news that President Trump and the First Lady have tested positive for COVID-19. Although the jobs report missed, the focus today is on the health of the President of the United States. As a result, European markets are firmly in the red. Asian markets closed mainly lower but China remained closed due to the Golden Week holiday.

Job growth slows in September. Hiring slowed during the past month, as the September nonfarm payrolls release showed the labor market added 661,000 jobs, short of Bloomberg consensus expectations of 859,000. However, revisions added 145,000 to the payroll numbers from the two months prior. The unemployment rate fell to 7.9% from 8.4%, ahead of consensus expectations of 8.2%. Growth in the labor market has slowed in recent months, permanent job losses have increased, and we’ve seen more corporate layoff announcements amid fading stimulus and rising COVID-19 cases (source: Bureau of Labor Statistics).

Rough day for copper. One of the better economic signs we’ve seen is the strength in copper recently, as copper is used all over the world as a very important industrial metal. Thursday it fell more than 5% for the worst day since March. It is worth noting this took place during the Chinese Golden Week holiday. Given China buys a large part of the world’s copper, this could be part of it. Still, this is worth watching and if copper continues to weaken, this could be a clue the overall global economy could be faltering as well.

Payout restrictions for banks extended. The Federal Reserve extended curbs on dividends and share repurchases for the nation’s biggest banks through year-end due to ongoing economic risks from the pandemic. A difficult interest rate environment is the primary reason for our cautious stance on financials, but capped investor payouts delay a potential positive catalyst.

Here’s the fourth quarter. Hard to believe it, but we are officially down the homestretch of 2020. Historically the fourth quarter has been the best quarter of the year, with the S&P 500Index up 3.9% on average and higher 79% of the time. During an election year, it has gained 2% on average and has been higher 82% of the time. The last two times the seasonally weak third quarter gained more than 5%, however, the fourth quarter fell both times—in 2012 and 2018.

Technical update. Markets rose broadly Thursday, as mega-cap growth names pushed the Nasdaq up 1.4% and the S&P 500 to a 0.5% gain. Despite the tech rally, real estate was the best-performing sector on the day, climbing 1.6%. Markets are lower in early trading today, and we see first technical support in the 3200 range. To the upside, 3393–3425 marks resistance.

COVID-19 news. On Thursday new cases in the United States rose 3.2% week over week, leaving the weekly change in the seven-day average only marginally positive (source: COVID Tracking Project). Hospitalizations are 11% higher week over week after increasing for the sixth straight day. Germany reported its largest number of new cases since mid-April. New York State was downgraded by Moody’s for the first time in 30 years due to the impact of the virus.