Market Outlook in A Divided Government

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What’s in Today’s Report:

  • Market Outlook in a Divided Government
  • Macro Landscape Beyond Politics (It’s Getting More Positive)
  • FOMC Preview

Futures are sharply higher again thanks to momentum from Wednesday’s rally, combined with more than expected QE from the Bank of England.

The Bank of England will increase its QE program by 150 billion Pounds, larger than the expected 100 billion, underscoring that global central banks are become more active in supporting their economies.

Politically, markets expect Biden to reach 270 electoral votes today with the official call of Nevada (which would put him exactly at 270).  The market is viewing the election as largely decided despite what will be a myriad of legal challenges.

Today the big event is the FOMC Announcement (2:00 p.m. ET) and Fed Chair Press Conference (2:30 p.m. ET).  I’d expect the Fed will keep a lower than normal profile given the election uncertainty, but the market’s focus will be any commentary that implies it’s open to more QE (if they don’t mention it, we could see mild disappointment like we saw in September).

Beyond the Fed and election headline watching, we also get weekly Jobless Claims (E: 745K) and markets will want to see that number continue to decline.

Election Roadmap Update (What’s It Means for Markets?)

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It’s been a very late night and a very early morning and much of this analysis has been changing by the hour, and as such hasn’t been edited.  Please forgive any excessive typos.

What’s in Today’s Report:

  • Election Roadmap Update (It’s All About Tier 3 Now)
  • Three Key Takeaways from Last Night’s Election (No Blue Wave But Maybe a Contested Election)
  • What’s Next:  When We Can Expect Results From the Six Remaining States

Futures have gyrated wildly throughout the night on the shifting election outlook but as of this writing they are  marginally higher.

In the Presidential election numerous (seven) states remain undecided and the Presidential race is very close.

Republicans have outperformed in Senate races and are now favored to hold the majority, likely yielding a divided government.

Today focus will remain on the election and specifically when the remaining six states (NC/GA/PA/MI/WI/NV) are called.

Outside of the election, we also get the ADP Employment Report (E: 600K) and the ISM Services Index (E: 57.6), but while important reports, they’ll be overshadowed by the election headlines, and we need to be prepared for a lot of “noise” and intra-day volatility.

Tom Essaye Quoted in Courthouse News Service on November 3, 2020

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“If the race is decided by the verdict in a single state … and the margin is close (less than 1%), then both the Biden and Trump campaigns will send lawyers…” wrote Tom Essaye, president of The Sevens Report. Click here to read the full article.

Tom Essaye Quoted in Deal Breaker on November 3, 2020

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“Ultimately, the markets want clarity, and the main threat to risk assets this week is the emergence of a contested election, so if races are tight enough for campaigns…” Tom Essaye, founder of The Sevens Report, wrote in a note. Click here to read the full article.

Tom Essaye Quoted in CNBC on November 2, 2020

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“Ultimately, the markets want clarity, and the main threat to risk assets this week is the emergence of a contested election, so if races are tight enough for…” Tom Essaye, founder of The Sevens Report, wrote in a note. Click here to read the full article.

Tom Essaye Quoted in Motley Fool on November 2, 2020

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Tom Essaye of Sevens Report thinks a Biden win could bring major benefits for all cruise stocks, including Royal Caribbean, according to a report by Benzinga. Essaye sees the possibility of cruise lines cashing in on a possible $5 trillion Biden stimulus package in the short term, and that in the longer term, “re-opening travel to Cuba would be another positive…” Click here to read the full article.

Election Roadmap

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What’s in Today’s Report:

  • Election Roadmap

Stock futures are rising with global shares this morning as the U.S. election comes into focus after a mostly quiet night of news.

There were no notable economic reports or market-moving COVID-19 developments overnight leaving investors focus almost exclusively on today’s election.

There are two economic reports today: Motor Vehicle Sales (E: 16.5M) and Factory Orders (E: 0.6%) but neither should move markets and no Fed officials are scheduled to speak ahead of this week’s FOMC meeting.

There are a few notable earnings releases to watch today that could influence sector trading: MCK ($3.87), HUM ($2.86), SYY ($0.20), and PRU ($2.69) but none of the quarterly reports are likely to have a significant impact on the broader market.

Today, the election will clearly be in the forefront of investor focus, specifically how close the races in key swing states turn out to be. Ultimately, the markets want clarity, and the main threat to risk assets this week is the emergence of a contested election, so if races are tight enough for campaigns to sue to halt or extend recounts, expect a reversal of this morning’s rally and potentially significant risk-off money flows in the sessions ahead.

A Historic Week Finally Arrives

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What’s in Today’s Report:

  • A Historic Week Finally Arrives
  • Weekly Market Preview:  This is a week full of potential catalysts including:  The election, the FOMC decision, the jobs report, a potential vaccine announcement, and more QE from the BOE.
  • Weekly Economic Cheat Sheet:  Jobs Report (Friday) is the key this week.

Futures are more than 1% higher following a generally quiet weekend as markets bounce ahead of a week full of potential catalysts.

Politically, Biden maintains a wide lead nationally but polls have tightened in some key swing states (FL/AZ/IA). But, markets do still expect the “Blue Wave” final result.

Economic data was solid was Chinese, EU and UK manufacturing PMIs all beat estimates (and remained above 50).

Today we do get one important economic report, the October ISM Manufacturing PMI (E: 55.7), but that shouldn’t move markets unless is a big negative surprise.  Instead, we’ll start to get headlines and whispers about how the election is shaping up (early voting totals, etc.) and those headlines are likely to move markets today and tomorrow.  So, don’t be surprised if markets get volatile today and tomorrow, but keep in mind almost all of it will be trading “noise.”

Is Stimulus the New QE?

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What’s in Today’s Report:

  • Is Stimulus the New QE?
  • Economic Data:  Jobless Claims Hit a Low for the Recovery

Futures are moderately lower following a disappointing night of earnings.

Super cap tech earnings were fine in general but didn’t meet lofty expectations, and AAPL, AMZN, FB and TWTR all dropped after posting results after the close.  GOOGL was the only major tech stock to rally after earnings, and that tech weakness is why futures are lower this morning.

Politically, it was a quiet night and according to the polls the Blue Wave remains the likely election outcome.

Today there are a few notable economic reports, including Core PCE Price Index (E: 1.7%), which is the Fed’s preferred measure of inflation, as well as Employment Cost Index (E: 0.6%) and Consumer Sentiment (E: 81.2).  But, they shouldn’t move markets unless there’s a major surprise in the inflation data.

Instead, focus today will remain on the latest polls (does the race tighten?  If so that will weigh on stocks modestly) and coronavirus response (do we get more lockdowns?).

Three Events That Would Make This Pullback Worse

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What’s in Today’s Report:

  • Three Events That Would Make This Pullback Worse
  • The One Underlying Reason for the Decline Yesterday

Futures are bouncing modestly from Wednesday’s drop following a generally quiet night.

There was no new coronavirus related news overnight as infection numbers continue to rise in Europe and the U.S.

Politically, polls are tightening but the market still expects a Biden victory, while the Senate remains a toss-up.

Today will be a busy day as it is the most important day of Q3 earnings, and we also get important economic reports.

First, on the earnings front, several of the most important tech stocks for the entire market report after the close, including:  AMZN ($7.30), AAPL ($0.69), FB ($1.94), GOOGL ($11.39), TWTR ($0.06).

Also this morning, we get two potentially important economic and central bank events.  First, weekly jobless claims need to hold last week’s gains (and stay under or close to 800k, which would reassure market the recovery is still ongoing).  Second, the ECB decision is this morning, and no change is expected to policy.  But, during the press conference, which starts at 8:45 a.m., markets will want to see ECB President Lagarde strongly hint more easing coming soon.

Finally, the financial media will likely highlight the Preliminary Q3 GDP which will likely set a record at 30.9%.  But, that number won’t move markets.  First, Q2 GDP fell by 31% (also a record), so that’s important context.  Second, it’s an “stale” number and the market is only interested in current looks at the economy, which is why weekly claims are the more important economic reading this morning.