Week from 2 to 8 November 2020
Three days after the polls closed in the US presidential election, Trump’s campaign desperately tried to turn the tide of history, filing lawsuits in Pennsylvania, Michigan and Georgia, but the die is cast. Though there was no blue wave, Joe Biden will be the 46th president of the USA and Kamala Harris will be the first female vice-president as Pennsylvania’s 20 electoral votes eventually put them over the 270 Electoral College votes needed to take the White House.
Democrats are also on the verge of keeping their House majority, even if the party will likely have fewer seats next year than it does to date. On the other hand, their chance of taking back the Senate now looks slim. Two Georgia runoff elections will effectively determine Senate control in January 2021. However, this would be all the more necessary for Joe Biden as a presidency with a Republican Senate-Democratic House split may result in more gridlock, even though he will have to “face a series of extraordinary challenges in a deeply and bitterly divided country”, to quote Barack Obama.
That said, such an assumption may potentially have a more neutral impact on markets (stimulus package lower than expected by Democrats, but limited support for tax increases and new regulation). In addition to the October Manufacturing PMI which hit its highest level in two years (59.3 in October compared with the September reading of 55.4 and economists’ estimates of 55.8) and the unemployment rate which fell by a full percentage point to 6.9% of the workforce, this may explain why the S&P 500 posted its best weekly performance (+7.32%) since April. The Nasdaq Composite also exploded to the upside (+9.01%) while the Dow Jones Industrial Average gained 6.87%. International equity markets followed suit (MSCI EMU, MSCI World and MSCI Emerging Markets up 7.35%, 7.72% and 6.61% respectively).
All the S&P sectors rallied strongly, most of them recouping the severe losses suffered last week. Information technology (+9.70%), health care (+8.25%), materials (+7.63%), and communication services (+7.60%) were the top gainers. Energy trailed far behind (+0.81%) though WTI crude oil rose 3.77% as US stockpiles fell more than expected last week. Utilities also underperformed the broad market significantly (+2.70%).
On the interest rate front, US Treasury yields swung up, down and back again (10-year T-Note finally closing at +0.83%, -5bps week-over-week). Investment grade bonds (+0.35% in Europe, +1.59% in the US) and high-yield bonds (+1.57% in Europe, +2.29% in the US) rebounded strongly (best week since early June), but the breathtaking performance came from emerging debt (+3.48% in local currencies).
Lastly, gold soared over $1,950/Oz (+3.82%) in one of its biggest post-summer rallies as the dollar was back into the red (USD-EUR -1.91%).
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