Major U.S. stock indexes were down for the week with the tech sector weighing heavily on returns. Unloved areas of the market like international, small-cap and value stocks all held relatively better and were actually up for the week in what looks to be at least a short-term reversal in recent trends. It was an action-packed week filled with deal announcements, major IPOs, and guidance from the Federal Reserve. Focus has shifted to what is in store on the fiscal front as lawmakers aim to come to a deal Friday in order to avoid a government shutdown next month, but still remain at an impasse over the next round of coronavirus relief.

Weekly Returns:

S&P 500: 3,319 (-0.64%) (SPX)
FTSE All-World ex-US (VEU): (+0.71%)
US 10 Year Treasury Yield: 0.7 (+0.03) (SPTL)
Gold: $1,958.25 (+0.92%) (GLD)
EUR/USD: 1.1848 (+0.03%) (FXE)

Major Events

• Monday – ByteDance, the Chinese tech company that owns TikTok, has chosen Oracle (ORCL) as its “trusted tech partner” to take over TikTok’s U.S. operations, but with few details on the deal logistics.
• Monday – OPEC cut its forecasts for world oil demand by 400,000 barrels a day through 2021 citing elevated risks from COVID-19. It forecasts a drop in demand of 9.5 million barrels a day in 2020.
• Tuesday – Major retails announced plans for a new shopping holiday 10.10, to take place October 10th and inspired by 11.11, which is November 11’s Singles’ Day, in China.
• Wednesday – The Fed voted to keep short-term rates near zero.
• Wednesday – In the largest software IPO in history, Snowflake (SNOW) began trading Wednesday at $245 per share more than doubling at the open.
• Thursday – Initial jobless claims came in at 860,000 which was down from last week, but inline with expectations while continuing claims beat expectations.
• Friday – Volatility picked up on Friday along with increased trading volumes from “quadruple witching” day, a quarterly event where options and futures on indexes and equities expire.

Our Take

The Fed concluded its two-date policy meeting this week with Federal Chairman Jerome Powell speaking on the latest rate decision and adjustments to the outlook for GDP, inflation, and unemployment. Most committee members expect rates to stay near zero through 2023. Powell provided more color on their new approach to allow inflation to run above the 2% target for some time in order to stimulate economic growth and reach full employment. The committee adjusted its near-term guidance upward and now sees a full-year GDP decline of 3.7%, compared to the prior forecast of a 6.5% drop, but did however lower their forecasts for 2021 and 2022 by 1% and 0.5% respectively.

The takeaway message from Powell was that although the Fed has many tools left to support the economy, what is really needed now is fiscal support to keep the economy on stable footing. He reiterated that the Fed would continue to do its job which is to achieve maximum employment and stable prices, but “over the long run, we can’t really affect the growth rate of the United States. The potential growth rate of the United States is not a function of monetary policy.”

Powell made his view very clear that the private sector and fiscal policy are what drive the long-run growth rate through efforts that increase productivity, labor force participation and the enhancement of workers skills. As it stands right now, talks over another coronavirus aid package continue to stall in Washington as both sides fight over the dollar amount and allocation of funds. Failure to come to a deal on this soon would most likely derail the already fragile economic recovery. Market volatility is already likely to pickup as the election approaches, but additional uncertainty on the fiscal front would likely exacerbate things.