10/4/2020: Weekly Wrap-up and What to Expect

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Trump working in a hospital after being diagnosed with COVID

Market Movers

The S&P 500 increased by 0.4% last week, stunted by the news that Trump contracted COVID. The volatility we’re seeing is typical of election seasons, but there are some major drivers and barriers for the stock market that make near term direction unclear. Some of these include a potential stimulus package vs. the president contracting COVID. There’s a lot going on, but we’ll break it down for you. Here are the details:

  1. 📉 Daily COVID cases and hospitalizations are increasing while COVID deaths remain on the decline. The U.S. is seeing COVID cases on the rise as the daily number of testing increases. Current hospitalizations have more or less reached previous low levels, but seem to be increasing, which is reflective of the growing number of positive COVID cases. Luckily, the number of deaths are on the decline, but we expect this trajectory to reverse in a couple of weeks once some of the cases convert to hospitalizations and ultimately, deaths.

  2. 📈 The number of reopened / reopening states increased by two, driven by Massachusetts and Tennessee. With case count much lower than the national all-time high, we’ve seen a greater number of states reopen. At this point, 36 of 50 (72%) states are in the reopening process or have already reopened. However, as cases begin to increase in states that have reopened or are reopening, we may see some states pause or reverse their reopening process. An important consideration is whether the country can take another round of lock-down. Given our stagnating economic recovery, states may decide to keep restaurants and stores open despite increasing case counts.

  3. 📈 Unemployment claims decreased by 36K since last week to 837K claims and the unemployment rate decreased to 7.9% in September. The market reacted positively to the unemployment and jobless claims news. The U.S. added 661K new jobs in September, dropping the unemployment rate to 7.9%. Interestingly, we are nearing the European Union’s unemployment rate of 7.4% in August. We hope to see unemployment claims decline in the upcoming months, but it may be a slow and long process unless there is a significant stimulus package promoting employment or a vaccine that is released. We expect more news around these two catalysts late in the year.

  4. 📈 The House passes a $2.2T stimulus package, which includes a $600 weekly unemployment bonus, direct payments, small business loan funding, and aid to airlines. Last Thursday night, the House passed a $2.2T stimulus bill that will definitely reinvigorate the economy and the stock market. However, we’ve seen this movie play out previously when the Senate Republicans rejected the last $3.0T bill. One big difference here is that Trump tweeted yesterday for the stimulus to get passed. We’ll hold out hope and see how the Senate Republicans respond.

  5. 📉 Trump was hospitalized after being tested positive for COVID and his vitals may be concerning, bringing uncertainty to the stock market. One thing the stock market does not like is uncertainty. Trump testing positive for COVID and potentially having dangerous vitals (e.g., quickly decreasing oxygen rates), brings a lot of uncertainty towards the election, his potential health outcome, and how the country will run in the worst case scenario. Furthermore, there has been conflicting information about Trump’s health, which the market will react to. Overall, the uncertainty will most likely place a damper on the market’s performance.

WX Capital believes there could be a near-term volatility in the broader market. Again, we anticipate biotech to remain strong. The near-term volatility will be based on the uncertainty of Trump’s health and the potential for another stimulus bill. Furthermore, with cases going up in the U.S., investors are worried for a second lock-down, which we believe is unlikely. We will rely on our market hedges to help offset near-term volatility and invest in more stable securities, such as pre-business combo announcement SPAC units, shares, and warrants. As always, please don't hesitate to reach out with questions!


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