Just when we thought we knew what would happen between now and election day, the passing of Justice Ginsberg has reshuffled the deck just 40+ days ahead of the election. President Trump is likely to nominate a replacement for Ruth Bader Ginsburg’s seat in the coming days with Amy Coney Barrett and Barbara Lagoa being the top contenders. Coney Barrett is a devout Catholic important in the Midwest. Lagoa would be the first Cuban American woman nominated to the Supreme Court.
Senate Republicans are likely to move forward on processing the nomination. This will involve a hearing in the Judiciary Committee and possibly a committee vote. Senators are not promising a final Senate confirmation vote before or after the election. This is because the nominee has not been selected yet, the hearings have not taken place, and the election hovers over the nomination. The process will determine if and when a final vote occurs. The timing of a potential confirmation vote will be crucial to the expected Affordable Care Act hearing on November 10th. Republicans have enough time to get a new justice on the Court before the November 10th hearing. The consensus view was that Chief Justice Roberts was unlikely to throw out the entire ACA and would have the votes to support this view with Ginsburg on the Court. But a new pick upends this view and creates more uncertainty around the ACA-levered stocks.
Declines in mega-cap technology shares led stocks lower for the third consecutive week, capping another week of heightened volatility as the market searches for leadership. Despite the lack of a new stimulus package from Congress and the Federal Reserve calling the economic outlook “highly uncertain,” investors have started to rotate into more cyclical areas of the market over the last few weeks at the expense of technology shares. Economic data continues to improve but at a slower pace. Industrial production increased by 0.4% in August versus 3% last month and retail sales improved by 0.6% versus 1.2% in the last reading. As a sign of the times, shares of Snowflake Inc. surged over 100% above its initial public offering price and closed the week with a market capitalization close to $66 billion. The cloud data warehouse vendor made history as the biggest initial public offering for a software name. Despite a strong beat and good guidance, shares of Adobe Inc. fell as investors took profits. Shares of FedEx Corp. surged following a strong quarter as E-commerce drove revenue higher by 36%. In addition, margins improved due to increased volume, lower fuel costs, and package surcharges. Looking ahead, market volatility is likely to remain elevated as we come closer to the election and vaccine trial data is released. Both are likely to drive binary outcomes. In our view, a well-diversified portfolio that is spread across sectors, stocks, and styles is prudent during the current uncertainty.
The Federal Reserve’s meeting from last week was noteworthy for the Committee’s resolving that it “aim(s) to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time…” In accordance with this they maintained the currently accommodative stance with a target range for the federal funds rate at 0 to ¼ percent. The Committee observed that significantly lower oil prices and weak overall demand are keeping down consumer price inflation. They also saw overall financial conditions improving in recent months. August Industrial Production was reported increasing 0.4% last Monday which underwhelmed versus expectations but was the fourth consecutive month of expansion. August Retail Sales were seen increasing 0.6% last Tuesday and were up 2.6% versus a year ago. However, with the $600 weekly unemployment benefit from the federal government running out at the end of July, expectations going forward should be moderated. Wrapping up major reports from last week, it was noted that August Housing Starts declined but that the University of Michigan’s preliminary report on U.S. consumer sentiment shot up to a six-month high with only 16% of respondents saying they expect a worse economy one year from now.
Source: Strategas, First Trust
Market Performance through 9/18/20
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.
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Last Week's Headlines: 9/21/2020
1. Industrial production rose 0.4 percent in August for its fourth consecutive monthly increase. However, even after the recent gains, the index in August was 7.3 percent below its pre-pandemic February level. Manufacturing output continued to improve in August, rising 1.0 percent, but the gains ...