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Equity markets finished slightly higher last week as investors continue to hope for a fiscal stimulus package. On the vaccine front, some trials have been paused due to health concerns, and Pfizer has filed an emergency-use plan for the end of November. Retail sales continue to be a bright spot for the economy, showing unexpected gains in September, even while jobless claims came in higher than expected and job growth showed signs of slowing.
Stocks oscillated between positive and negative territory last week, reflecting a tug-of-war between rising concerns and encouraging economic data. Weakness last week stemmed from a continued stalemate in stimulus talks, along with the recent rise in COVID-19 cases and the accompanying worries over implications for the continued reopening of the economy. Markets did find a lift from a positive U.S. retail sales report that showed consumer spending rose strongly in September despite the lack of renewed aid from Washington, signaling some resiliency to the recovery. We believe that the broader fundamental outlook remains intact, but as last week demonstrated, policy support and the path of the virus, along with the discovery of an effective vaccine, will be key drivers in the months ahead. Here are our thoughts on the progressing investment outlook:
Economic outlook: Recovery entering a slower phase
We believe the economy has likely formed a durable bottom, but the pace of growth will slow, and the return to pre-pandemic levels will take time. Despite uncertainties, a gradual improvement in the labor market, along with low interest rates and fiscal stimulus, should help sustain the economic recovery into 2021.
Equity outlook: A new bull emerges, but stocks may take a breather
The longer-term outlook for stocks is positive, in our view, with support from economic growth, corporate earnings and interest rates. In the near term, we expect volatility to remain elevated and markets to consolidate recent gains. We don’t believe the gains experienced since March will be matched in the months ahead, but we do think a durable economic expansion will give legs to the new bull market.
Fixed-income outlook: Interest rates to stay low for longer
Through near-zero interest rates, bond purchases, and newly enacted credit facilities, the Federal Reserve has gone to extraordinary measures to provide ample liquidity to the credit market. We expect monetary policy will remain highly accommodative for several years to support the economic recovery.
International outlook: Global rebound aided by policy support
The global economy is in the early stages of a rebound, though disparate conditions between major economic regions and resurfacing pandemic challenges will likely make for a protracted recovery. We think monetary and fiscal policies will remain highly supportive. An enduring, though modest, expansion should support positive global equity-market performance ahead.
Angelo Kourkafas, CFA
Nela Richardson, PhD
Craig Fehr, CFA
Source: 1. FactSet
|Dow Jones Industrial Average||28,606||0.1%||0.2%|
|S&P 500 Index||3,484||0.2%||7.8%|
|10-yr Treasury Yield||0.74%||0.0%||-1.2%|
Source: Factset, 10/16/2020. Bonds represented by the iShares Core U.S. Aggregate Bond ETF. Past performance does not guarantee future results.
The Week Ahead
Important economic news coming out this week include housing data and the preliminary October Purchasing Managers' Index.
The Weekly Market Update is published every Friday, after market close.
Market indexes are unmanaged and cannot be invested into directly and are not meant to depict an actual investment.
Past performance does not guarantee future results.
Diversification does not guarantee a profit or protect against loss.
Systematic investing does not guarantee a profit or protect against loss. Investors should consider their willingness to keep investing when share prices are declining.
Dividends may be increased, decreased or eliminated at any time without notice.
Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal.
Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.
The content of this report is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.
The Dow Jones Indexes are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use.
All content of the Dow Jones Indexes © 2017 is proprietary to Dow Jones & Company, Inc.
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