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As October 2020 came to a close, investors were spooked by the election, virus uncertainty, and presumably having to tell their kids there would be no trick-or-treating this year. And as Covid-19 cases spiked across the country, investors’ early hopes for another stimulus package out of Washington sank, taking most major indices lower with them. In this Market Wrap-up, we’ll tie a bow on the following trends:
• Off the YCharts! Hello white picket fence — Americans are primed to buy homes
• Major Index Returns: Bullishness in emerging markets
• Sector Movement: Nearly every sector falls
• Hot Stocks of the Month: Handbags are in vogue as Tapestry (TPR) gains
• Laggards & Losers: Vertex Pharmaceuticals (VRTX) loses as drug trial ends prematurely
• Economic Data: GDP seesaws back up, but hasn’t recovered just yet
Off the YCharts! Hello White Picket Fence
Homebuyers have sprung to action amidst the pandemic, as Housing Starts and Existing Home Sales jumped to their highest levels since the ‘08 Financial Crisis. The cause? Not only has Covid-19 made Americans more likely to ditch big cities and head to the ‘burbs, but the Fed locking in near-zero interest rates for the foreseeable future has helped bring the benchmark 30 year Mortgage Rate to an all time low of 2.8%. Likely to start trending on Google: “What are HOA fees and why are they so high?”
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Markets were shaky during October, as the S&P 500 briefly gained over 5.2% in the first couple weeks of the month. The positivity quickly became muted, however, as the S&P 500 dropped roughly 2.7% during October, pushing YTD returns down to 2.8%. The 10 year Treasury finished up the month at a recent high of 88 bps.
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Major Index Returns
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Major indices were mixed during October, with emerging markets gaining 2.1% on a total return basis. Bonds were relatively flat; the Barclays US Corp High Yield edged up 0.5% while the Barclays Global Aggregate moved up 0.1%. The Aggregate Bond index has returned 5.8% YTD as domestic rates fell drastically; it remains to be seen how much more room it has for significant returns. Of note, the MSCI EAFE fell 4% over the month, as many nations reenacted lockdowns related to another spike in Coronavirus cases.
Sector Movement
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Nearly every sector got slammed during October. The only respite for investors was Utilities, which returned 5.1%. Every other sector lost value in October, including one of 2020’s more popularly discussed sectors, Tech, falling 5% over the month.
Hot Stocks of the Month: Ten Top Performers
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People have to keep their hand sanitizer somewhere — handbag maker Tapestry (TPR), whose brands include Coach and Kate Spade, rocketed up 45% this month. Though sales were slightly down YoY, Tapestry handily beat estimates amid strong numbers in China and from ecommerce. At runner up, Align Technology (ALGN) continued its strong performance in 2020. The medical device company, most known for its Invisalign brand, beat estimates with Q3 EPS coming in at $2.25, up from $1.48 a year ago.
Laggards & Losers: Ten Worst Performers
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Biotech investors beware. Despite blowing past estimates and more than doubling EPS year-over-year, Vertex Pharmaceuticals (VRTX) got slammed after the company ended a study for its small molecule drug VX-814. Narrowly in second place (though not exactly deserving a silver medal) was DexCom (DXCM). We’re scratching our heads about this one; DXCM beat earnings, but apparently not by as much as analysts are used to, leading to its precipitous drop.
Financial Market & Advisor News
YCharts Adds Dynamic Model Portfolios: Tech Roundup (ThinkAdvisor)
All Revenue is Not Created Equal with Brian Feroldi (YCharts)
How New Tech Can Really Help Advisors: Cerulli (ThinkAdvisor)
Make personal finance fun (InvestmentNews)
It’s been years since investors have been this fearful of a stock market crash, Nobel-winning economist warns (MarketWatch)
Free Guide: How Do Presidential Elections Impact the Stock Market? (YCharts)
Economic Data
Gross Domestic Product (GDP)
GDP increased at a 33.1% annualized (7.4% quarter-over-quarter) rate in the third quarter, far outpacing any previous quarterly growth numbers. That being said, we’re still down 3.5% since the start of the year, as the GDP contracted by 31.4% annualized in Q2 (a 9% drop QoQ).
Employment
September’s unemployment rate lowered slightly to 7.9%, down from 8.4% in August. Initial claims fell to 751k in the final week of October, its lowest level since the beginning of the pandemic, while non-farm payrolls increased 661k in September.
Production and Sales
US Retail and Food Services Sales increased 1.91% in September. Durable Goods Orders were up 1.85% from August, improving upon the last read of 0.4%.
Housing
US New Single Family Houses Sold in September slipped 3.52% month-over-month, while the US House price index jumped 1.50%, it’s highest monthly gain since at least 1991.
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Consumers
Both the US Consumer Price Index and Consumer Spending (PCE) increased 0.2% in September.
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