U.S. stocks were flat for the week while international stocks were down. In Europe, data showed a resurgence in new coronavirus cases per day, sparking talks of potential renewed lockdown measures.

Part of the increase has been attributed to a surge in testing that has caught several asymptomatic cases that would have otherwise gone undetected in the first wave. So far, it appears to be less deadly this time around with hospitalization and death rates lower than back in March and April. In the U.S. more than 8 million people have been diagnosed with the virus and the death toll is now close to 220,000. As the world braces for a second wave, attention in the U.S. has been focused on the need for additional stimulus measures and the upcoming presidential election.

Weekly Returns

S&P 500: 3,326 (+0.19%)
FTSE All-World ex-US (VEU): (-1.12%)
US 10 Year Treasury Yield: 0.76 (-0.03)
Gold: $1,898.21 (-1.66%)
EUR/USD: 1.1719 (-0.89%)

Major Events

Monday – The Senate Judiciary Committee began Supreme Court confirmation hearings for Judge Amy Coney Barret, who would be the sixth conservative justice on the nine-judge Supreme Court if confirmed.
Monday – Earnings season kicked off with several large banks reporting earnings that beat expectations this week.
Tuesday – U.S. health regulators paused Eli Lilly’s phase three trial of ACTIV-3, a monoclonal antibody treatment for the coronavirus, over potential safety concerns.
Wednesday – Europe surpassed the U.S. in new cases of Covid-19.
Thursday – New jobless claims came in higher than expected and at the highest level since August 22 while continuing claims dropped over 10 million.
Friday – Retail sales came in surprisingly strong for September with a rise of 1.9% versus the consensus estimates of 0.7% led by clothing and accessories.

Our Take

After months of talks, party leaders still have not been able to reach a deal to pass additional stimulus measures likely needed to maintain the current yet fragile economic recovery. Treasury Secretary and House Speaker Nancy Pelosi talked extensively Thursday, making it appear that a stimulus deal before the election is not off the table. Democratic leaders want a comprehensive relief package while Republican leaders are pushing for a smaller package to get at least some stimulus passed now.

The main points of contention still at hand are that Republicans want liability protections for businesses from coronavirus-related lawsuits and to keep the figure to less than $1.8 trillion, compared to the $2.2 Democrats are proposing. Democrats are standing firm on additional funding for state and local government, tax benefits, and childcare. President Donald Trump stated he would be willing to go above $1.8 to get a deal done before the election. Both parties do appear to be on the same page in passing a national virus testing and tracing plan, but it remains unclear if the two sides can reach a stimulus deal before the election. They have at least agreed to keep working on getting a deal done before the election, but it appears less likely with only a few weeks left until the November 3 election day.

We expect market volatility to pick up in the coming weeks with uncertainty over a timeline for additional stimulus, the potential for drawn out election results, and a second coronavirus wave resurging. However, we believe investors are better off staying invested in a diversified portfolio to ride out short-term market volatility and should not make asset allocation decisions based on politics, which tend to be very emotional. Brexit and the 2016 election both serve as a good reminder that even if you knew the outcome, it is still very hard to predict the market reaction.