Nov. 6, 2020 - Stocks rose this week, and not by a little bit.
Major indices posted health gains every day this week, except Friday, when a number of the week's big gainers seemed to lose a little steam.
Election ReturnsThe election can be given credit for much of the week's gains. The outcome, while not the Blue Wave that many predicted, does have positive implications for stocks.
While several prominent Senate Republicans have already pivoted to expressing concern about the National Debt, a sign the GOP is likely to try to block as much of a Biden Administration's agenda as possible, there is still a good chance that some form of economic stimulus bill gets pass, although it likely won't be signed until after President-Elect Biden is sworn in and will be smaller than if there had been a Democratic sweep.
The divided government (pending the outcome of a pair of runoff elections for Georgia's Senate seats), likely means that President Trump's tax cuts will remain in place. The amount of corporate taxes being collected, as a percentage of the economy, is at a record low (item 4) and with Republicans still in control of the Senate, that seems likely to remain the case.
Other positives for stocks from a Biden presidency are a likely easing of trade tensions with China, the European Union and other trade partners, and the disappearance of "Volfefe." A less chaotic approach to trade and regulatory policy makes running a big business, particularly the large multinational corporations that make up much of the stock market, much easier.
While nearly every sector posted gains this week, the benefits weren't necessarily evenly distributed. The mega-cap tech names that have lead the recovery continued to outperform. Health Care was another outperformer, presumably out of relief that challenges to the Affordable Care Act were likely to disappear for a while.
Pot Stocks: How High or Half Baked?Marijuana stocks also posted big gains this week. Many of these stocks fell Wednesday before posting double and even triple-digit gains on Thursday and Friday. This is likely due to the fact that easing of marijuana rules won in every locality where it was on the ballot. Of course, marijuana is still illegal at the federal level in the United States making it hard, if not impossible, for companies that deal with the actual marijuana plant to even get a bank account.
Federal decriminalization seems like an area where a Biden administration may be able to find a couple of sympathetic Republicans in the Senate for a bipartisan compromise. This would open the door for large-scale marijuana businesses to operate in the U.S. A brand-new industry obviously has huge growth potential, making some of these investments potentially attractive, but since federal decriminalization is far from a sure thing, it is too early to tell if this week's price moves in pot stocks are the start of a new "green" rush, or if the market is just blowing smoke.
Monthly Jobs ReportOctober's Employment Situation Report was released Friday morning. The headline numbers were all better than expected, with the unemployment rate falling a full percentage point to 6.9% from 7.9%. We have written a number of times, including as recently as Monday about the dueling narratives of temporarily laid-off workers returning to work while permanent job losses continue to rise. Both numbers fell this month, which is a promising sign.
The number of people without jobs remains more than double where it was in February and includes 3.6 million people who have been out of work for 27 weeks or longer. This group is particularly significant as it represents people who have likely exhausted state-provide unemployment benefits, which stop at 26 weeks. For reference, mid-March, when most of the anti-coronavirus measures started to cut into economic activity was 33 weeks ago.
CoronavirusGiven everything else that's happened this week, one could be forgiven if they haven't been keeping up with the global pandemic. The news on this front is not good. New cases set records for several consecutive days in the U.S., topping 100,000 several days.
A similar rise in cases is occurring in Europe where lockdowns are being reinstated. New lockdowns don't seem to be happening in the U.S. yet, but rising case counts and colder weather likely means many people who have been enjoying outdoor dining and other relatively safer activities may soon curtail that activity.
Data about travel, from both the TSA and Apple show in a decline in how much people are moving around. This, more than the outcome of the election likely explains the relative weakness in the energy sector this week. Oil prices are falling again as demand for a fuel used primarily for transportation is expected to wane.
Other parts of the market that are reliant on economic activity also struggled this week. While the financial sector posted a reasonable gain, banks in particular lagged. Banks and transportation-related sectors have relatively dim prospects until there can be some return to normal. Until the coronavirus is under control, these sectors of the market, and likely many of the millions that remain unemployed will continue to struggle in an economy running well below its potential.
All told this week, the S&P 500 gained 7.3%, the Nasdaq added 9.0%, and the Dow Jones Industrial Average rose 6.9%.