Market participants seemed to be fixated throughout October on the likelihood of a possible additional fiscal stimulus deal. Equity markets weakened in the second half of the month when stimulus talks broke down and it became clear that a deal wouldn’t be reached prior to the U.S. election. Investors reassessed their risk positioning ahead of the U.S. elections and broad U.S. equity markets declined for a second straight month. The S&P 500 returned -2.7% in October and is now -6.4% since August 31st. Investment grade corporate credit spreads narrowed by -11 basis points despite the underperformance of equity markets. The price of oil fell -12% while more traditional safe havens like U.S. Treasuries and gold each declined in October. This appears to us to be indicative of investors reducing leverage and adding to their cash positions ahead of an uncertain election season.
U.S. economic data released in October showed continued signs of recovery. Job gains of +661,000 were reported to have occurred in September and there was an additional +145,000 in revisions for the previous two months. That brings the total job gains to nearly 11.5 million since May. However; that represents only about half of the jobs that were lost in March/April. The initial estimate of third quarter U.S. GDP showed the economy increased at an annualized rate of 33.1%. Strength was seen nearly across the board, but notable strength was evident in consumer spending (+40.7% annualized growth rate). It is useful to assess the GDP data on an unannualized basis in comparison to the beginning of the year. The economy has decreased by -3.5% on that basis. Fourth quarter growth would have to be reported at around 15% annualized rate for the economy to show positive growth for the full year 2020.
Sources: Bloomberg Barclays
Image courtesy of Jorge de la Torriente
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