Equities higher after close U.S. presidential election

Prior week summary

The major U.S. equity indices marched higher last week, snapping a two-week stretch of declines and marking the best weekly performance since April, as investors digested a deluge of economic data releases, the U.S. presidential election, third-quarter corporate earnings, and rising COVID-19 cases in the U.S. and Europe. Last week the U.S. presidential election dominated headlines as the makings of a close race formed once polls started closing on Tuesday evening. Several states were too close to call on election night, with vote tallying in many states continuing throughout the week. On Saturday morning, NBC News declared Joe Biden the winner of the presidential election after it appeared he had built an insurmountable lead in Pennsylvania, one of the key battleground states and home to 20 electoral votes. The balance of power in Congress appears to remain relatively unchanged, with Democrats keeping a majority in the House of Representatives, and Republicans expected to retain a majority in the Senate. The landscape of the Senate is uncertain however, as two runoff elections in Georgia are set to take place in January. President Trump has yet to concede in the presidential race and has requested or plans to request recounts in several contentious states, including Georgia, Wisconsin, and Pennsylvania. The President also plans to issue several legal challenges after calling into question the integrity of the election. In a statement released after Joe Biden was projected to win the presidency, the Trump campaign said, “Beginning Monday, our campaign will start prosecuting our case in court to ensure election laws are fully upheld and the rightful winner is seated.”

Updates on several economic indicators were released last week and painted a mixed picture of the U.S. recovery. The ISM Manufacturing Index posted a 59.3 level, topping both expectations and the 55.4 level seen in September and notching a sixth consecutive month in expansionary territory. The pace of construction spending slowed, increasing 0.3% month over month, and factory orders topped analyst expectations, increasing 1.1% in September. The ISM Non-Manufacturing Index fell to 56.6 in October reflecting the impact of rising COVID-19 cases on the U.S. service economy. On the employment front, the October non-farm payroll report indicated that the U.S. economy added 638,000 jobs last month, above expectations but below the 672,000 job additions seen in September. According to the release, job gains were most prominent “in leisure and hospitality, professional and business services, retail trade, and construction,” while “employment in government declined.” The better-than-expected job additions worked to lower the unemployment rate from 7.9% to 6.9%, but analysts warn that the official unemployment rate figure underestimates the true level of unemployment in the U.S. New jobless claims fell week over week to 751,000 while continuing jobless claims also continued to fall last week to 7.38 million claims. The FOMC held its two-day policy meeting on Wednesday and Thursday of last week. As expected, the FOMC held the target range steady at 0%–0.25%. In a statement released announcing the decision, the FOMC highlighted the uncertainty of the economic outlook due to the ongoing pandemic saying, “The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

The look forward

In a light week for economic data releases, market participants will be looking forward to updates on jobless claims, the Consumer Price Index, and the Producer Price Index, among others.

Rates snapshot

Market implied policy path (Overnight indexed swap rates)