Read the 10 stories to remember from the week which ended November 6.
Story #1: Hopes of a “Goldilocks” election outcome spurred a rally in most asset classes
Equities, bonds, commodities and cryptocurrencies surged last week despite the lack of a clear winner emerging from Tuesday’s presidential election as vote-counting continued in several pivotal states. With former Vice President Joe Biden appearing to have the clearest path to victory and Republicans seeming likely to retain control of the Senate, investors began to anticipate a Goldilocks scenario of further monetary stimulus (quantitative easing) and more limited tax increases and regulation than under a “blue wave” Democratic sweep.
Story #2: The best election week performance for U.S stocks since 1932
U.S stocks posted their best weekly return since April. This was the best election-Week performance for stocks since FDR was elected in 1932. The S&P 500 and the Dow both jumped around 7% while the NASDAQ surged more than 9%. Value stocks underperformed Growth stocks after the election. We note that International stocks (including emerging markets) posted strong gains as well.
Story #3: Sharpest decline in volatility since April
The election and surge in the stock market appeared to bring calm to an index that measures investors’ expectations of market volatility over the next 30 days. The Cboe Volatility Index, or VIX, fell around 35% ꟷ the sharpest weekly decline since April. The VIX term structure moved back into contango.
Story #4: A volatile week for Treasury yields
Longer-term Treasury yields ticked down during a volatile week, driven by election news. Indications that Republicans would retain control of the Senate led investors to revise down expectations for additional fiscal stimulus in the new year, which could have weighed on Treasury prices. The 10-year note closed on Tuesday at the 0.90% level for the first time since June, only to tumble to 0.78% on Wednesday. By the end of the week, the yield crept back up above the 0.80% level. U.S 30Y yields rose back to 1.60% on Friday after bouncing off the 200-day moving average.
Story #5: A weaker dollar lifted all commodities
The dollar crashed to its lowest level since May 2018. This was the worst election-week performance for the dollar since Bush Sr. was elected in 1988. The weaker dollar triggered a rally in commodities. This was indeed the best election-week for gold since the end of the gold standard. Gold futures pushed back above $1950. Silver outperformed and is back above $25. WTI Crude Oil traded up to $39 intraweek before rolling over on Friday.
Story #6: A great week for cryptocurrencies
Hope of more quantitative easing seems to be the trigger for the crypto rally which took place just after the election. The price of the bitcoin surged above $15,500, a gain of about 15% for the week. It now trades at its highest level since January 2018. The price has risen about 110% year to date; over the past month, it’s up around 35%. Other cryptocurrencies gained as well with Ethereum outperforming.
Story #7: European equities
Despite rising COVID cases and new lockdowns imposed in England and Greece, shares in Europe rallied in sympathy with U.S. equities. European stocks also received a lift from the generally strong quarterly earnings reported by European corporations and the additional stimulus measures announced in the UK. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 7.02% higher while Germany’s DAX Index rallied 7.99%. The UK’s FTSE 100 Index advanced 5.97%.
Story #8: U.S Jobs recovery continues
The U.S. labor market numbers released on Friday showed that the economy added a better-than-expected 638,000 jobs last month. In addition, the unemployment rate fell to 6.9% from 7.9% in September, and the labor force participation rate climbed after declining in the previous month.
Story #9: Fed holds steady while the BoE gets more dovish
Federal Reserve policymakers met on Wednesday and Thursday but announced no changes to monetary policy, as expected. Chairman Jerome Powell left open the possibility that the Fed could expand its purchases of long-term Treasuries. On the other side of the Atlantic, the Bank of England (BOE) increased its bond-buying program by a larger-than-expected GBP 150 billion to GBP 895 billion, with an eye toward helping to offset any damage caused by a renewed nationwide lockdown and uncertainty surrounding post-Brexit talks. The central bank said the increase would allow it to extend the asset-purchase program until the end of 2021.
Story #10: Ant Group Mega-IPO suspended
The widely anticipated USD 37 billion initial public offering (IPO) of Chinese fintech company Ant Group was postponed last-minute. The Shanghai Stock Exchange attributed the decision to a changing regulatory environment. It came after founder Jack Ma criticized China’s banks and financial regulators at an October 24 conference. Chinese regulators had been increasing their oversight of Ant Group well before Ma’s speech and on Monday issued draft rules calling for stricter regulations for online micro-lending companies.
