An uncertain market looks for clarity
What you need to know this week in 4:03 minutes - Oct 27, 2020
As a second wave of COVID cases lurks over the horizon, a lack of a coordinated response effort has Mr. Market feeling uneasy. Preliminary data from the Bureau of Economic Analysis will provide a health check on the economy and insight into how well America has handled the first wave of the pandemic. Hopefully, that will make him feel better. In the meantime, earnings season continues and Mr. Market will be paying close attention as some of the S&Ps leading companies report earnings this week.
COVID-19 is on the rise globally, what does it mean for the global economy?
The Bureau of Economic Analysis releases preliminary GDP expectations for Q3
Earnings season continues with some big names reporting
What’s going on?
Don’t Call it a Comeback:
We feel you Ll Cool J, we really hope it isn’t a comeback. Last week, the US hit consecutive record new daily COVID-19 cases, casting doubt on whether or not the US is actually in control of the pandemic. As winter looms, experts warn that cases may continue to increase. In an exemplary example of political coordination and communication, the President stated that the US is “rounding the turn” on flattening the curve and controlling the pandemic while the White House’s Chief of Staff said that the Trump administration is “not trying to control” the pandemic. Meanwhile, the Vice President’s team handles a second spread of the virus within their ranks. Sounds like it’s all under control.
Simultaneously, European countries experienced an aggressive resurgence of the virus, as all EU countries except Cyprus, Estonia, Finland, and Greece fell into the “serious concern” category. Italy, Spain, and France have enacted evening curfews among other strict measures to limit social interaction.
You down with GDP?
Who’s down with GDP? The Bureau of Economic Analysis (BEA) is! This Thursday the BEA will release advance estimates for Q3 GDP. After two of the worst recorded quarters in US GDP history, analysts will be looking to understand how the economy has recovered as a whole this quarter. Despite conservative expectations across sectors (see last week’s update), analysts are expecting Q3 2020 to produce record-setting growth (+31%). The optimistic take is fueled by sustained improvement in industrial and consumption figures in a more relaxed (sans-lockdown) environment.
Earnings Season, Episode III - The Revenge of the S&P
With analysts side-eying the GDP report this Thursday, the S&P’s champions such as Apple, Microsoft, Alphabet, Amazon, Facebook, Visa, Mastercard, Berkshire Hathaway, Pfizer, and several others are reporting this week. After a wave of skeptical predictions from analysts, tech stocks look to prove Wall Street wrong. SNAP has led the way for advertising-driven tech platforms by obliterating their expectations and soaring to a new all-time high this week.
But what does it all mean?
A growing concern of a 2nd wave has countries around the world starting lockdowns again. Many sectors and businesses that barely survived were just starting to recover from the lockdowns earlier this year. In the US, the situation is worsened by the continued government stalemate over the stimulus package. As COVID cases rise, and a coordinated relief effort is stalled, companies must prepare for a potential second lockdown. As we saw earlier in the year, lockdowns could result in a decrease in consumer spending, cause more small businesses to close up shop, and unemployment figures to rise. Even though many larger businesses have adapted, a second wave could still have a severe impact on the economy.
Albeit, we may be more prepared for a second wave as the BEA report will shed light on how the economy fared during the first lockdowns, providing an understanding of how effective different strategies were in handling the first COVID wave. Personal consumption is expected to be the key driver of economic activity (e.g., retail, groceries, e-commerce, etc.) fueled by the previous stimulus package and incentives from the Federal Reserve. Earnings from the payment networks (Visa, Mastercard, American Express) and e-commerce platforms (Amazon, Shopify) will provide further insight into consumer spending habits and payment volume.
Together with the BEA report, this week will provide investors with the first glimpse at the economic recovery after the lockdowns were lifted and hopefully bring a bit of certainty about where we are standing.
What’s an investor to do?
The market hates uncertainty, and the lack of a coordinated response amidst growing cases is certainly a recipe for uncertainty. Further delays in passing a stimulus as cases continue to rise may cause an increase in volatility and it’s certainly no time to be a passive investor. As the situation continues to unfold it will be critical to watch investments closely. A stimulus resolution will be a much-needed breath of fresh air, regardless of the outcome of the Presidential election.
While the White House and the overarching political world create further uncertainty, look to the GDP report and earnings results of major payment and e-commerce platforms to understand how the economy and businesses are performing sans-political uncertainty.
What we’re reading:
A Little History of Economics by Nail Kishtany
If you didn’t know, now you know:
Chile voted to change its constitution: Over 78% of Chileans voted to replace the constitution that was established in 1980 under the military dictatorship of Gen. Augusto Pinochet. While the constitution has undergone numerous changes to eliminate authoritarian provisions, Chileans believe the constitution still prevents change and does not do enough to protect social rights as it does market rights. Proponents argue that while change is needed, changing the model that has made Chile one of the wealthiest nations in Latin America could have devastating effects. Under the current constitution, GDP has grown, poverty has decreased but the wealth gap has expanded and now Chileans will vote to ratify the new Constitution in 2022.
Some good news everyone!
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