Market-moving events and data points are coming fast, and in a chaotic sequence. Here are some bullets we are watching.
1. The outlook for elections is still highly uncertain and volatile. Biden appears to be strengthening. Texas governor Greg Abbott has restricted drop boxes for absentee ballots to one per county (“Texas governor shuts down drop-off sites for early mail votes,” https://www.reuters.com/article/us-usa-election-texas/texas-governor-shuts-down-drop-off-sites-for-early-mail-votes-idUSKBN26M7BX). What does that mean? Florida’s governor has opened up the state without restrictions and has released only incomplete/inaccurate school data in a form that could not be more unwieldy. (If you want total cases, you have to add numbers on 13 pages, with a line for every school in the state.) Florida is the most important of the swing states. Hundreds of millions of dollars are being spent here on TV, radio, newspaper, social media, mail — you name it. Yet the election outcome here remains uncertain. I will stop, but all the swing states are lurching through dramatically changing outlooks.
2. The employment report was also a mix. Remember that a self-employed Uber driver still sees herself as employed even though her income is down. So what does an 8% unemployment rate really mean?
Here’s TLR Analytics:
“We’ve now regained just over half the jobs lost between February and April. The pace of gains, both total and private, slowed for the third consecutive month. Employers added 661,000 jobs in September, with a loss of 216,000 in government, offsetting an 877,000 gain in the private sector. Mining & logging added 1,000 (its first gain since February); manufacturing, 66,000 (almost twice August’s gain, led by durables); wholesale trade, 19,000; retail, 142,000 (just over half August’s gain); transportation & warehousing, 74,000 (somewhat below August); information, 27,000 (matching August); finance, 37,000 (almost half again as much as August); professional & business services, 89,000 (about half August’s gain); education & health, 40,000 (less than a quarter August’s performance, dragged down by a loss of 69,000 in education—health alone was slightly above August); leisure & hospitality, 318,000 (more than twice August’s gain, with almost two-thirds coming from bars & restaurants); and other services, 36,000 (half August’s gain). The only major sector in the red was government, off 218,000, with all levels shedding workers: Federal employment was off 34,000 (largely temporary Census workers); state, 48,000; and local, 134,000. The state and local losses all came from education; as we noted in yesterday’s report, there may be some seasonal adjustment funniness going on here amidst a bizarre return to school season.”
(This excerpt comes from TLR Analytics’ “Comments on September Employment.” See TLR Analytics at https://www.tlranalytics.com for a worthwhile subscription to excellent analysis.)
Here’s Naroff Economics (https://naroffeconomics.com):
“We may have just finished the strongest quarter of growth in history, and there is little question that it was the government that played a major role in the rebound. All you have to do is look at the August income and spending numbers. Total household incomes fell dramatically, as payments for unemployment compensation cratered. The drop was nearly six times the increase in wages and salaries, which by itself was pretty strong. Another way of looking at this is to think of worker income as the combination of wages and salaries and unemployment payments. In July, when the enhanced unemployment payments were still being made, unemployment income accounted for 13.6% of the total. After the enhanced payments stopped, that dropped to 6.4%, and the total of the two sources of income declined by 5.4%. Those numbers show how dependent households were/are on unemployment checks. On the spending side, consumption was up strongly. The rise was largely due to people eating out again and no longer being afraid to visit doctors. The rise in vehicle sales helped drive an increase in durable goods demand, but nondurable sales were down. The savings rate, which is still just over fourteen percent, remains high, but it is falling. As for inflation, it is accelerating. Since it remains below the Fed’s target, I doubt anyone cares.”
3. The first debate is ancient history in a hurry thanks to news. For those who wish to review debate details, here’s a link to a full transcript: https://www.rev.com/blog/transcripts/donald-trump-joe-biden-1st-presidential-debate-transcript-2020.
4. Fed policy makers are clearly waiting for Congress to act. In fact, Chair Powell is pleading for action. Congress is fiddling in a negotiation that amounts to a standoff. And the country waits. Here’s a link to a policy paper by Mickey Levy and Charles Plosser, entitled “The Murky Future of Monetary Policy”: https://www.hoover.org/sites/default/files/research/docs/20119-levy-plosser_1.pdf. We highly recommend it.
5. The White House is contending with the COVID outbreak cluster and its spread while the president’s treatment, along with his course of illness, is evolving daily. This development is a sequence of headlines. More coming. The campaign is changing. Lots more to grapple with in the area of governance. And where is the news discussion about how steroids alter behavior both when started and when weaned off with titration.
6. Cumberland President & CEO John Mousseau has written recently on what we can expect the municipal bond market to look like post-election. See “Muni Bonds Turn Toward the Election,” https://www.cumber.com/cumberland-advisors-market-commentary-muni-bonds-turn-toward-the-election/.
Will markets look beyond the chaos and focus on economic recovery, vaccine development, earnings, and global peaking of COVID over the next year? Will there be more October surprises? Yes and yes. We are optimistic for recovery in the longer time frame and over the next two to three years. Over the next two or three months, however, we expect more headline risk and volatility.
David R. Kotok
Chairman of the Board & Chief Investment Officer
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