Bassanese Bites: Testing resistance – November 09 2020

Global markets

After threatening to break support at the late September low in the previous week, the S&P 500 rebounded last week to end near resistance at the mid-October high. The U.S. stock surge came despite what appeared lingering uncertainty over the U.S. Presidential election outcome. As we saw four years ago, it’s very hard to predict how the U.S. market will immediately respond to elections.

Wall Street appeared to become convinced quite quickly that Biden’s slim lead in key States would hold – given the strong showing in postal votes that continued to be counted – and that Trump’s threatened legal action would amount to nothing. Some solace was perhaps also taken from the fact that the Democrats did not also clinch a Senate majority (which will limit Biden’s intent to raise corporate taxes), though this still remains possible depending on the outcome of two required run-off elections in Georgia in early January.

On the economic front, meanwhile, U.S. economic news was generally upbeat – with a stronger than expected jobs gain and ISM manufacturing report for October – though a smaller than expected drop in weekly jobless claims.

Less comforting, U.S. COVID cases continued to mount, with more cities and towns tightening up social distancing restrictions (such as banning indoor restaurant dining) though without resort as yet to the draconian ‘shelter in place’ measures seen earlier this year. The Fed meeting came and went, with Powell again promising to do more quantitative easing if necessary.

In terms of the week ahead, an early focus naturally will be on the strength of Trump’s lawsuits – and whether these threaten to rekindle election uncertainty. With little critical U.S. economic data, COVID developments will also be in focus, as will any hints on the size and timing of a Biden fiscal stimulus plan for the new year. COVID and Trump remain risks, but otherwise markets may well continue to ‘buy the rumour’ of an impending fiscal boost.

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