Market Matters

This week we saw a failure in the stimulus talks to get a deal done prior to the election. U.S. stocks reacted accordingly by selling off for the week in the major indices, while rates steepened this week, with the 10-year at 0.86%. As we head into the election, we would expect some volatility, especially if we do not know the election for multiple days. While the election is the main event next week there is the U.S. jobs report coming up, but the importance of the numbers will most likely be dictated by the election results or lack thereof.

 

Initial Jobless Claims

Initial jobless claims for the week of October 24th declined by -40k to 751k. This is now the lowest claims level since the week of March 14th, when they posted at 282k. The four-week moving average of claims is down to 787,750 from a prior 812,250. Continuing claims, which lag by a week, dropped by -709k from a prior 8.46mln to 7.76mln for the week of October 17th. While the downtrend in claims has continued, the larger question is going to be whether a re-surge in COVID-19 cases and renewed measures aimed at containing the virus will lead to another spike in claims in the coming weeks.

 

Q3 GDP

Q3 GDP, which is a measure of the total goods and services produced in the July through September time frame, expanded at +33.1% annualized pace. This rebound follows the dismal Q2 print of a -31.4% decline, and better than economists’ predictions at +32%. Within the report for Q3, we see a surge in consumer activity, which accounts for roughly 68% of the GDP total. Shoppers began spending, as the bar and restaurant sector entered into re-openings across the country. Personal consumption increased by +40.7%, while gross private domestic investment rose +83% with 59% of that being in the residential side. Personal income fell more sharply as Coronavirus relief payments disappeared, and personal savings also declined to +15.8% from the Q2 print of +25.7%. Government spending declined -4.5%, including a -6.2% decline in federal spending, and a -3.3% drop at the state and local level. A stronger recovery of imports of +$475bln vs. exports at only +$239bln drove the trade deficit from $775bln to $1.01trln. This is the largest trade imbalance on record and caused a -3.1% dip from the final GDP tally. Overall, the report confirmed the strong rebound that markets expected, however, this still leaves growth -3.5% lower than where we finished out 2019.

 

Pending Home Sales

The National Association of Realtors’ Pending Home Sales index fell -2.2% in September to 130.0, now its first decline since back in April. The September reading of 130.0 is still very positive, and although it is lower than the August print at 132.9, the YoY increase sits at +20.5%. Pending sales grew by +2.0% in the Northeast to 119.4 and is up +27% YoY. The Midwest saw a decline of -3.2% to 120.5 but is +18.5% higher than last year. In the South, numbers declined by -3.0% to 150.1, with the annual increase now at +19.6%. Finally, sales in the West were down -2.6% to 116.8, but still up +19.3% on an annual basis. According to the NAR, "The demand for home buying remains super strong, even with a slight monthly pullback in September, and we're still likely to end the year with more homes sold overall in 2020 than in 2019. With persistent low mortgage rates and some degree of a continuing jobs recovery, more contract signings are expected soon. Additionally, a second-order demand will steadily arise as homeowners who had not considered moving before the pandemic begin to enter the market. A number of these owners are contemplating moving into larger homes in less densely populated areas in light of new-found work-from-home flexibility."

 

Durable Goods

Durable goods orders for September rose by +1.9%, posting much better than market expectations of a +.5% increase. New orders ex-transportation saw a slightly lower improvement, only up +.8% MoM. Core capital goods orders, which is a measure for future business investment, rose +1.0%. Looking back the data for August, we do have some revisions with total orders now at +.4%, down -.1% from the originally posted +.5%, however, orders ex-transportations were revised higher by +.4% to +1.0%. If we consider the September data, while overall orders are still -3.7% below pre-pandemic levels, ex-transportation orders are higher by +1.8%. Shipments have still been on the weaker side over the last few months with the total rising +.3%, ex-transportations shipment up +.2%, and core capital goods shipments up +.3%. Inventories saw similar growth numbers this month, up +.4% and +.2% ex-transportations. The total inventories/sales ratio rose a modest +.002 to 1.723, and ex-transportations up +.001 to 1.682.