Stocks fell hard Friday on election-related and economic headwinds.
The S&P 500 fell 0.95%, with the tech components on the Nasdaq (down 1.35%) bringing the major indices down, although most sectors were selling off. The 10-Year Treasury yield dropped to 0.66% from 0.68%.
First off, jobs added in September were 661,000 versus estimates of 800,000 and the unemployment rate fell to 7.9%, according to the Bureau of Labor Statistics. This shows a slowing rate of economic recovery and calls into question the V-shaped earnings recovery in 2021. This runs contrary to the positive labor market data out from ADP this week and other positive data points.
Working against the economic headwind would be fiscal stimulus, which many are now questioning can get through the Senate quickly enough before too many small businesses lose solvency and close their doors. This adds another later of concern for employment and consumer spend.
So it wasn’t just big tech faltering, but cyclicals fell hard too. Banks fell more about 1% as the yield curve compressed, a major negative for bank profitability. Oil shares fell with crude oil prices falling almost 5% to $36 a barrel. Large cap energy ETF (XLE) - Get Report fell 1%.
And as slightly indications of late have pointed to a slightly pro-Trump market, which one trader recently confirmed to TheStreet, one headwind to Trump’s reelection emerged: the President has COVID-19. Biden’s lead in the polls jumped from just above a 6 percentage point lead to 7.2 percentage points.
"Initial market reactions to the news that President Trump tested positive for COVID19 are as expected-negative,” wrote Jamie Cox, Managing Partner for Harris Financial Group in email remarks to reporters. "However, markets could have some unexpected reactions as this could break the log jam in current stimulus negotiations.”
Jeff Buchbinder, Equity Strategist for LPL Financial, said "Markets appear to be increasingly pricing Joe Biden in as the favorite.”
Investors have digested that, even with a Democratic-controlled Congress, policies like hiked corporate taxes may not be implemented in full, as no party is likely to control Congress by a wide margin. Still, Trump is viewed by many to be stock market-positive.
But “look for volatility to increase between now and the end of November and in the event of a contested election, the uncertainty could stretch in December, but ultimately the Federal Reserve and fiscal stimulus from the government are the key factors for markets for the rest of this year,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.