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Weekly Market Update for September 25, 2020

by JM Hanley

A choppy week ended on a positive note, as all of the major indexes rose over a percent Friday. Tech shares reversed their recent weakness and outperformed. The tech-heavy Nasdaq is up over a percent from last Friday, while the SP 500 was down on the week. Coronavirus hospitalizations rose slightly, as did new cases.

Economic data this week was mixed. Home sales remain the bright spot of the recovery, thanks to record-low interest rates. New home sales, expected to drop last month, increased instead. Existing home sales rose to their highest level since 2006. Both come as home prices are rising at an accelerating pace. Elsewhere, orders and shipments of capital goods (basically, business equipment) rose last month as well. This is particularly good news. Much of the recovery has been driven by buoyant consumer spending, a result of stimulus checks and expanded unemployment insurance passed by Congress. This last data point indicates corporate investment has begun to accelerate as well.

Initial jobless claims, however, rose again last week. They’d been expected to decline. This data point contradicts other indications that layoffs are dropping. Processing delays and other bureaucratic misfires may be distorting the numbers. 12.6 million people remain on traditional unemployment, which is down slightly from last week.

With the recovery slowing, a fourth round of stimulus legislation has become even more important for the market. Fed Chair Powell emphasized the urgent need for support payments for individuals and businesses in remarks before Congress Wednesday. The odds of Congress reaching an agreement – after no deal was struck in tandem with legislation to fund the federal government – had seemed low. However, optimism has risen in the last two days on the news that the Administration and the Democratic-controlled House have restarted negotiations. The two sides nonetheless remain far apart on how large of a package is needed.

In the medium term, markets have begun to price in different outcomes of November’s election. If Democrats win the Presidency and the Senate, the party platform includes a partial reversal of the corporate tax cut passed in 2017. Offsetting this, they would likely pass a generous fiscal stimulus bill that would include expanded unemployment benefits, aid to state and local governments, and infrastructure spending. If Republicans retain the Senate or the Presidency, corporate taxes would remain lower, which would be positive for equities. But a skimpier stimulus bill could be a headwind to the recovery.

Sectors including healthcare, green energy, and industrials would likely benefit from a Democratic sweep, while pharmaceutical firms, banks, and traditional energy (oil and natural gas) would benefit from Republican success. But concerning trade with China – investors’ top worry before the coronavirus pandemic – both parties are now similarly hawkish.

Highlights on next week’s economic calendar include consumer confidence, personal spending, and the September jobs report on Friday. The third quarter ends on Wednesday.

*The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Clients or prospective clients should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All clients/prospective clients are strongly urged to consult with their tax advisors regarding any potential investment. Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategies vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision.

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Ulland Investment Advisors

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