Looking back at the last few months, it seems that Wall Street has managed to remain extremely flexible and resilient under the onslaught of all the geopolitical upheaval that has been ricocheting around the world.
Some of the momentous events that have been hitting the markets in the recent past are:
- The shock outcome of the Brexit
- A failed attempted military coup in Turkey
- Terrorism and unrest, both domestic and international.
To quickly refresh the memory, take a look at the chart used below.
It shows the Standard & Poor’s 500 (S & P 500) reaction to the unexpected results of the referendum decision, by a narrow margin, to leave the European Union.
This led to the pound plummeting to exchange rate lows and global markets experiencing a rapid domino knock on effect.
Continuing with charts that show how the geopolitical climate is a definite catalyst to cause and effect on the markets, used below is the chart for the expected USD/TRY (US Dollar to Turkish Lira) exchange rate immediately after the news of the Turkish military coup.
And the final chart being used to display the markets seeming natural resilience is below.
It can be seen from the charts above – that Wall Street’s brief fainting spells were quickly followed by a recovery that saw it once again continuing to climb quite relentlessly.
To further illustrate this tenacious attitude, the yield on the ten-year Treasury note experienced a sharp fall on July 15, when the events of the attempted military coup in Turkey hit the news cycles.
The coup attempt failed and by that Monday the ten-year Treasury note bounced back when investors were quick to unload treasuries and other haven instruments once the situation in Turkey seemed resolved.
In an even more marked display of recuperative stamina was the U.S. market’s rapid-fire recovery after the United Kingdom voted to leave the European Union.
This result was unexpected and caused the markets around the world to shed $3 trillion of the market value in two nerve-wracking days.
While some other countries and their respective markets were still licking their wounds, Wall Street was quick to regain lost ground and recovered in about two weeks.
The pound is still yet to recover, and is loitering around $1.31, which is a low not seen for quite a few decades.
But, in the primary, bonds and stocks recovered in a relatively short space of time.
It all bears looking into a little deeper.
There is more than a fair share of opinions and theories for the reasons behind the market’s apparent strength.
Central bank liquidity has been very generous of late, in the view of chief economist at G+ Economics, Lena Komileva.
G+ Economics is a London-based market consultancy and research company.
Komileva is referring to the floating facility of accommodative policies that have been handed out by The Federal Reserve, The European Central Bank, and The Bank Of Japan, in the aftermath of the 2008 calamitous financial crisis.
Many investors viewed the bailout policies that were implemented then, as a safety net that will always be available when needs arise in the future.
When disturbances like the Brexit results threaten a possible temporary pause in global growth, the central banks have no other option other than to act as a circuit breaker to curtail the spread of the damage.
This is what Komileva believes.
She goes on to further state in a research note posted earlier this week, which the central monetary figures and authorities in the world, are not tracking different and separate national cycles anymore.
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Some of the banks like the BOJ, ECB, and the Fed still stay committed to maintaining lower rates for longer than usual to be able to offset the global volatility caused by:
- incidents of terrorism
- slow or lack of confidence
- capital shocks
- trade slow-downs
This is, in effect, camouflaging the natural market forces of capital and economic de-globalization and politics.
These forces, Komileva says, should not be fought.
Mario Draghi, the President of European Central Bank, mentioned central bank policies as one of the reasons why the financial markets in the Eurozone were not equipped to handle the post-Brexit volatility.
He further stated in a news conference, that the financing conditions were remaining highly supportive and that was contributing to a strengthening to credit creation.
The S & P 500 is up 6% this year to date.
Equities are trading at historically high valuations and with respectable returns despite still declining earnings.
Greater volatility remains a possibility, but any correction is set to be of a short duration because there is most assuredly a central bank put.
This refers to the belief in the markets that that policy makers will be continuing to respond pugnaciously to market turmoil by liquidity measures and easing measures.
This approach is forming the investors attitudes, and the unusual central bank activism has been seen to elevate a few asset prices artificially.
Market stability is not policy criteria for major central banks, per se.
It is merely regarded as a by-product of easing measures in practice.
The Federal Bank held back from raising the rates in June this year only days before the Brexit vote, and news relays about the shock results began to pour in.
At the same time, in comparison, the Bank of England was quick to hint that the cutting of rates was a very real possibility at the next meeting.
U.S. investment strategist for Allianz Global Investors, Kristina Hooper, said in a posting regarding the Brexit market repercussions, that the results pushed rate expectations in the United States out further while the economy was still growing.
That was positive news for the stock market in the short term.
For stock gains to continue to be sustainable, it will be needed to see less artificial improvements in growth earnings.
The Federal Bank has a dual mandate i.e. the following will help understand:
- Full employment
- Price stability or inflation.
But the Fed is unable to ignore any serious market turmoil.
The Fed has so far been able to invoke international instability, and this includes any concerns about the Brexit implications, to delay further increases in the current benchmark interest rate.
In 2015, falling commodities prices and the possible slowing of growth in China was deemed sufficient cause for the Federal Bank to postpone increases until the end of last year.
Come September, there are speculations or hints that rate increase in definitely in the cards.
Wall Street Gave Campaign Donations
Biden Received $74M, Trump Received $18M
Despite enjoying one of the best bull runs in history, the market is looking forward to a new sheriff. According to the Center for Responsive Politics, Biden is the chosen one. Wall Street gave campaign donations to Democrat Joe Biden $74 Million, while incumbent President Donald Trump got $18 million. This included contributions since 2019 and until the first two weeks of October.
Biden’s Wall Street Supporters
Joe Biden’s campaign is about to amass $1 billion in the remaining days before the election. Among the Democratic nominee’s supporters is former Goldman Sachs President Harvey Schwartz. He gave $100,000 this October to the Biden Action Fund and other various party fundraisers.
During the 3rd quarter, Wall Street investors lined up to support the Dems. Beginning last week, Biden, the DNC, and other committees received over $330 million. In comparison, Trump and the GOP received a total of $220 million.
Bigger than Obama, Smaller than Hillary’s
Biden’s Wall Street donations are larger than the total of Obama’s two runs for president. It falls short of Hillary Clinton’s $87 million hauls in her doomed 2016 run.
As early as January, the Biden campaign approached Wall Street hotshots for support. These included Evercore founder Roger Altman and investor Blair Effron, Blackstone CEO Jonathan Gray, former Citigroup exec Ray McGuire, Centerbridge Partners co-founder Mark Gallogly, and former U.S. Ambassador to France Jane Hartley. A lot of them hosted fundraising events or donated money.
Biden also got big money from supporters from Paloma Partners and Renaissance Technologies. Renaissance’s founder Jim Simons donated $7 million to two super Biden PACs way back in March. He added over $350,000 to the Biden Action Fund in June. Henry Laufer, Renaissance’s chief scientist, gave $625,000 in June to the American Bridge PAC. Meanwhile, Paloma Partners founder Donald Sussman gave $9 million to Biden’s super PACs. An added $20 million from other hedge funds and private equity firms rounded off the total.
Most Ever Spent by the Industry for an Election
This year, the investment community gave $625 million in contributions for election campaigns. This covers not only the presidential elections but also congressional and senate contests. It stands on record as the most ever spent by the finance and investment industry.
From the total, $370 million went to super PACs and groups allowed to raise infinite funds.
Democrats got the lion’s share at 63% while the GOP got 37%. $161 million went straight to Dem candidates, while $94 million went to Republicans. Compare it to 2016, where the GOP received half of Wall Street’s money.
Funding for the Dems remained high despite talks of pushbacks to big business. There is opposition within the camp in naming business leaders to the Biden cabinet. Progressives are vocal about not wanting their candidate to cozy up to the big business.
Jeff Hauser of the Revolving Door Project researched potential Biden Cabinet selections. He is “cautiously optimistic” that Wall Street’s funding can influence future appointees. Hauser does believe that the sector’s contributions can help open doors to the Biden White House. He voiced concerns about “conventional thinkers within the Biden world.” These people might insist on paying “deference to the source of that $75 million.”
Meanwhile in the White House
For Donald Trump, Wall Street isn’t as enamored if you look at the numbers. He received a paltry $20 million during his initial run for president. Four years later, donations to his cause are $2 million less. Analysts noted that many previous finance backers held back on the reelection campaign. These include people who gave millions during Trump’s 2017 inaugural.
Records show that previous supporters helped Republican Senate or House candidates instead. The market’s support for Trump waned due to his coronavirus response. Anonymous sources noted that investors backed off despite Trump’s tax and regulation cuts. Since they think Trump is about to lose, these leaders don’t want to invest in him further.
Trump donor Dan Eberhart said “Wall Street is watching the same polls as everyone else. They can see the direction the campaign is going and they are starting to alter their strategy.” He added that “It’s about risk management. If they can’t beat Biden, they know they are going to have to join him.”
Watch this as CNBC breaks down Wall Street campaign donations during the 2020 election:
With its contributions, Wall Street implied a decision to support Joe Biden. Should he eke a win, Wall Street will definitely look for returns on its investment. They should remember that this man won over progressives like Senators Elizabeth Warren and Bernie Sanders, who aren’t exactly priority invites to ring the stock exchange opening bell. How do you think this will pay off for big money? Let us know what you think by sharing your thoughts in the comment section below.
Stocks Post Its Worst Day in A Month
Wall Street took a beating Monday as stocks posted its worst day in a month. Rising coronavirus cases and a fading stimulus relief led investors to sell-off.
The Dow Jones Industrial Average closed 2.3% lower. It fell down 935 points during the day before settling 650 points lower. All Dow stocks closed in the red except Apple, which eked out a .01% gain. It was the Dow’s worst day since September 3.
Meanwhile, the S&P 500 closed for the day at 1.9%, marking its worst day since late September. The tech-heavy Nasdaq Composite, which bounced back from its lows in the morning, finished lower at 1.6%.
While all sectors across the board experienced losses, some got crushed more. These include energy, industrials, and financials.
Higher Cases of Coronavirus
With eight days remaining before the elections, investors are starting to get jittery. Despite lots of talks, Congress has yet to approve a stimulus package. Cases of coronavirus are jumping in all states, and it recently hit a daily high average of 68,767 last Sunday.
Meanwhile, big tech companies are set to report earnings later this week. This lot includes Microsoft, Apple, Google, Facebook, and Twitter. Fawad Razaqzada of Think Markets noted that the reports can inject further volatility. In the note, Think Markets believed that “on a more macro level, ongoing US stalemate over US fiscal stimulus and the rapidly spreading Covid-19 is going to determine the direction for the wider markets.”
Tom Lee, head of research at Fundstrat Global Advisors, thinks Covid is a big influence over the market. He said “It’s almost as important as the Fed right now. Covid is suppressing the economy, and it’s essentially offsetting easy money. If we didn’t have Covid, people would be going out and spending money. It’s acting as a huge headwind.”
No Relief in Sight
Brad McMillan, CIO of Commonwealth Financial Network, thinks the reality hit investors hard. He told CNN business: “I think a big difference this time around [is]…there’s been a tremendous amount of hope baked into the market for quite a while, and we saw some things over this weekend that hit those assumptions hard.” The negotiations for a new relief package is gone at least until after the elections. Senate Majority Leader Mitch McConnel adjourned the Senate after confirming new Chief Justice Amy Coney Barrett. They will resume their session on November 9, or six days after the elections.
Without a clear stimulus plan, the US economy could start to double-dip. And if the rise in coronavirus cases continues, the business will shut down again. This nightmare scenario is haunting the market at present. Steven Wieting, the chief strategist at Citi Private Bank, sees dimmer prospects. “The ability to fight the virus further right now is very much in question, and it’s a political question.” Wieting believes that Washington could take months before anything gets done. This made investors tentative.
Tom Lee added that “We have a lot of things to be anxious about in the next couple of weeks. That’s why this is a pre-election market. But post-election, I think a lot of things that make people nervous turn into a tailwind. The post-election stimulus is a when not an if. Even if it’s a mixed Congress, I think there’s still some common ground. It’s just the scope that’s different. It would be a smaller package.”
Eight Days Remaining
The final eight days before the elections usually brings good vibes for Wall Street. This year, the bulls will need some extra running following Monday’s selloff spree.
Sam Stovall, chief investment strategist history, observed this bull phenomenon. Since 1944, the S&P 500 rose on average 2.5% in the eight days before elections. The index is up 17 out of 19 times, or 89%. The biggest rise came during the recent financial crisis, with the S&P 500 roaring back 18.5% in a bear market rally. That year, Democrat Barack Obama won over the GOP’s John McCain. The market sunk back to new lows after the election. It bottomed out four months later. The first decline in 1968 (-0.8%), happened as Richard Nixon won over Democrat Hubert Humphrey. The other was in 1988 when Republican George H.W. Bush won against the Dems’ Michael Dukakis.
Wall Street needs to get its act together with eight days remaining. A short, decisive victory by either party can help uplift America’s image. And with all the drama removed, maybe the market can go back to its winning ways.
Watch this as Stocks fall sharply at open amid Covid-19 resurgence:
Stock investors of The Capitalist, are you selling off right now, or are you holding off for a bigger payday? Do you think the market will rally in the next few days, or do you foresee better days after the elections? Share with us your stock scenarios as we count down to the elections. Leave your thoughts in the comment section below.
US Housing Sales Boom Will Last Until 2021
Redfin CEO Glenn Kelman told CNBC on Thursday that he sees the US housing sales boom will last until 2021. Total US Home sales increased 9.4% in September, surpassing estimates. Meanwhile, median prices went up 15% year over year. This is according to data provided by the National Association of Realtors.
Shares of Redfin, a real estate brokerage firm, were higher by 1% Thursday to $45.60. The stock more than doubled during this year. It now has a market cap of $4.5 billion.
Why do people buy houses during a recession?
During this time when the economy is reeling and jobs are tight, people buy homes. Why? There are a couple of reasons.
The bigger acceptance for remote work freed many people from living in the city. The opportunity to leave cramped apartments and expensive city living. The pandemic gave enough reason for workers to pack up and head for greener pastures. Next, interest rates are going down hard. From 3.7%, 30-year mortgage rates are now 2.9%, the lowest rates ever. Despite higher prices, people know this is the best time to buy on the cheap.
The intent is there. The pandemic allowed you to work anywhere. And interest rates allow you to pay the lowest interest rates. People are taking the plunge and buying. So what’s the problem? We’re running out of houses to buy.
Demand coming from the rich
Rich professionals who can work from home are the reason for the uptick in housing demand. Kelman said that many remote workers moved from major cities to distant suburbs. Kelman said these workers began “taking a permanent vacation where they’re working from those homes.”
People are taking advantage of low-interest rates to snap up homes. Kelman noted that “part of what is fueling this boom is that the economy has just split into two and rich people are able to access capital almost for free.” The opportunity to buy homes for cheap may be too much to resist. “Of course, they’re going to use that money to buy homes,” he added.
Meanwhile, there’s another group of people who would like to buy but can’t. Kleman said: “There’s just another group of Americans who are still struggling, who can’t access the credit because we’ve raised credit standards, and you have high unemployment. I just think those two trends, at some point, have to collide.”
Kelman foresees demand to continue until 2021 at least. Many undecided buyers will buckle down next year and take the plunge. He said: “There’s no way it can last forever. This level of demand is absolutely insane. I would expect it to last into 2021, at least.” Why 2021? “There are so many people now who have decided they’re not going to be able to buy a home by year-end,” he said. Kelman expects them to buy next year, “as their kids shift school districts. I do think we’re going to see this for some time.”
Shrinking inventory of houses for sale
With homes fast disappearing from the market, higher purchase prices are coming back. Based on data from the National Association of Realtors data, only 2.7 months’ supply of houses is available last month. This represents the lowest level since 1982 when the NAR began tracking data.
Kleman expects supply to increase after the elections. Uncertainty will decrease after voters elect a new president. Listing and selling a home can take months to process. That’s why sellers have a lower risk tolerance than buyers. “Buyers, when they see a house they love, they pounce,” he said. “I think the sellers are just looking long term in the economy and still feeling some anxiety. Many of them are going to put their homes on the market in January and February.”
Demand won’t last forever
The Wall Street Journal’s Justin Lahart thinks not everybody can live outside the big cities. A remote job in a vacation spot may pose difficulties for some. Winter conditions may also make some remote workers rethink their strategy. He also believes that the housing boom now made people buy houses sooner than later. He thinks many of the workers who moved to the suburbs would’ve done so in a few years. When the pandemic subsides, a smaller group might follow the exodus out of big cities.
The number of people who can afford houses will shrink as well. Many workers’ careers derailed during the year. Many millennials got burned during the financial crisis in the early 2000s. Now, a new career-threatening crisis is in full swing. The post-coronavirus landscape may depend on how well the economy rebounds. We’ll have next year to find out.
Watch this as CNBC reports on the US housing sales boom. Redfin CEO Says “people are buying vacation homes, then taking a permanent vacation:
Are you house hunting right now, or have you already bought a house this year? Why are you doing so? Let us know why buying a home is a good idea right now. Share your thoughts in the comments section below.
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