9/27/2020: Weekly Wrap-up and What to Expect

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News of House Democrats preparing a $2.4T stimulus package drive markets up significantly on Friday.

Market Movers

The S&P 500 increased by 0.4% last week after an impressive 1.6% rally on Friday following the news that House Democrats are putting together a $2.4T stimulus package. The markets saw significant volatility as COVID cases have begun to climb again in the U.S. There’s a lot going on, but we’ll break it down for you. Here are the details:

  1. 📉 Daily COVID cases are increasing while COVID hospitalizations and deaths are stabilizing for now. In the past week, the U.S. saw daily COVID cases increase by ~7K cases per day. While this figure reflects a significant increase in COVID testing of ~300K tests per day, it does not bode well for investor sentiment. Furthermore, while current COVID hospitalizations and daily COVID deaths have stabilized, we expect these metrics to increase in a couple weeks given there is a lag between COVID cases and hospitalizations/deaths. Most notably, New York cases have begun to rise again as they recently hit over 1K new cases per day just yesterday on September 26.

  2. 📈 The number of reopened / reopening states increased by three, driven by Hawaii, Indiana, and Nevada. With case count much lower than the national all-time high, we’ve seen a greater number of states reopen. At this point, 34 of 50 (68%) 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 increased by 4K since last week to 870K claims. Overall, the market did not react significantly to the small increase in unemployment claims given it was so minor. 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. 📈 House Democrats are preparing a $2.4T stimulus package, which includes direct payments, small business loan funding, and aid to airlines. Last Thursday, those familiar with the stimulus package plans said that House Democrats are preparing a $2.4T stimulus package that could be ready to vote on as soon as next week. This plan is notably smaller by $1T than the previous proposal that had failed in the Senate late August. While this news drove positive investor sentiment on Friday, it is important to keep in mind that the last bill had failed because there was a $2.5T discrepancy between what Senate Democrats ($3T) and Republicans ($500M) had wanted. While the stock market reacted positively on Friday to the stimulus package news, there is still a long road before we have an approved stimulus bill.

WX Capital believes there could be a near-term volatility in the broader market. Again, we anticipate biotech to remain strong. While the markets rallied on news of a potential stimulus package, there is still a long road before the stimulus is actually approved. In the meantime, increasing COVID cases and potential reopening pauses or reversals may have a negative impact on the economy. Furthermore, unemployment claims have plateaued and stopped seeing a decline, further demonstrating economic stagnation. Because of these considerations, we placed hedges in our portfolio last week. As always, please don't hesitate to reach out with questions!


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