Keep Calm and Count On
November 6, 2020
Voters remained glued to the edge of their seats as counting continued in the race for the White House. As of Friday afternoon, a winner had yet to be called as election workers continued to count mail-in ballots in Pennsylvania, Georgia, Arizona, and Nevada. The latest results showed Democratic Presidential Candidate Joe Biden leading the electoral college with 253 votes to President Donald Trump’s 214. Biden currently also leads in all four remaining battleground states – although the margins remain tight with more ballots still left to be counted. Despite not having the final tally, Wall Street seemed confident in calling the race in favor of Biden. While Republicans appear to have lost the White House, Wall Street cheered the prospect that they managed to hold the Senate. Democrats, meanwhile, successfully defended their majority in the House. With all eyes and ears fixed on the presidential election, the week’s strong jobs, manufacturing, and services numbers received little fanfare. After several weeks of handwringing, the prospect of a divided government vaulted the S&P 500 up 7.32% for the week – its best election week performance since 1928.
Nonfarm Payrolls Surprise to the Upside
The labor market continued to dig its way out of the Covid-19 induced slowdown as businesses increased their hiring for the sixth straight month. Employers added 638,000 jobs to the payrolls in October, handily beating estimates of 530,000. October’s payroll figures bring the total job gains to 12.1 million since April, which is more than half of the 22.2 million lost in the spring. The rise in payrolls helped push the jobless rate down a full percentage point to 6.90%. Gains were broad-based with hard hit Covid-19 sectors such as leisure and hospitality and retail posting strong gains. Professional and business services also saw steady gains, helped by continued demand for remote work. Construction hiring was robust as demand for housing remained high. It’s encouraging to see another strong jobs report as it shows the speed at which the labor market has been able to add jobs in a relatively short amount of time. However, the jobs market remains highly susceptible to rising Covid-19 risks. The pandemic is currently in the initial stages of its second wave in the U.S. which, in conjunction with a Biden administration which rested its case on social distancing prudence, could mean additional lockdowns could be in order.
Manufacturing Floors Sweep Up New Orders
The U.S. manufacturing resurgence continued in October with the ISM Manufacturing Index rising to 59.3 from 55.4 in September. Numbers above 50 signal expansion while numbers below 50 indicate contraction. October marks the index’s sixth straight month of expansion, driven by a surge in new orders as customers sought to replenish their inventories. Firms appeared to be confident in continued demand, increasing their payrolls for the first time in 14 months. Manufacturing has remained a bright spot throughout the pandemic as household demand for goods has remained strong. The Covid-19 pandemic has done what the private sector and federal government have failed to do, sparked a U.S. manufacturing resurgence. The gains in the manufacturing sector should hold post-pandemic as more manufacturers see the benefit of keeping production closer to home as a protection against unanticipated global supply shocks.
Services Industry Continues its Recovery
The U.S. services industry took the brunt of the hit from the Covid-19 pandemic as many customer-facing businesses were forced to shutter their doors earlier this year. The sector has come roaring back as more and more businesses have reopened. In October, the ISM Services index registered its fifth straight monthly expansion despite a renewed uptick in U.S. Covid-19 cases. The ISM Services index hit 56.6 in October, down slightly from September’s 57.8. A rise in new orders, employment, and business activity all helped drive the continued expansion. Consistent with the comments on payrolls above, the rebound has been remarkable, but the path forward remains highly contingent on the magnitude of Covid’s second wave.
Irrespective of how one may feel personally about the election, markets seem to believe they’ve gotten exactly what they wanted – gridlock – at least for two years anyway. There are still some key Senate calls that remain. The race in Georgia, in particular, is headed to a runoff, but the Street seems confident we are going to have a divided Congress. This has been the magic formula for markets in the past. A lot will be written about the election. Some will say it reflects a deeply divided nation. Others will point to the razor thin margins and say it simply indicates we have an evenly distributed electorate. While we’re no more qualified to comment on those views than the rest of our readers, having earned a crash degree in political science over the last 72 hours, what we believe we can say without offending too many people is that this race was as much shaped by Trump’s own persona as it was by the issues themselves. Perhaps because of that we’re not really as divided as some might otherwise claim. As a practical matter, there is no getting around the fact that Trump has been unpredictable. Even Trump’s own strategists would admit to that. In Biden, we’re likely to get more consistency. Consistently right, consistently wrong — take your pick, but markets seem to be saying they’re OK with whatever version of consistency he’ll offer – so long as it comes with a healthy dose of gridlock preventing much from actually getting done.
The Week Ahead
After a busy week, it’s expected to be a relatively light week for Wall Street with inflation and jobless claims being the highlights of the week. In overseas news, the Eurozone reports on industrial production.
Calm Amidst the Chaos
We all need a bit of calm during these anxious times. A recent Harris Poll, taken on behalf of the American Psychological Association, found that 68% of respondents described the U.S. presidential election as a significant source of stress in their lives, up from 52% four years ago. Psychologists say that the feeling of uncertainty may be worse for our psyches than knowing the actual outcome of the race, regardless of our political affiliation, but there are numerous ways that individuals can find calm amidst the chaos.
A whole host of wellness brands and entertainment companies are rushing in to provide a portal to peace of mind with titles like A World of Calm and Zenimation. These shows as well as numerous apps are the anti-entertainment solution attempting to cure the anxiety-spikes that Americans are feeling.
Disney’s Zenimation invites users to “unplug, relax, and refresh your senses for a moment of mindfulness” with an “aural soundscape experience like no other” using scenes and music from its library. The first of its seven-minute episodes is titled Water and features beautiful animations from Disney films such as Moana and Frozen 2. A World of Calm from the creators of the Calm app (see below), claims to transport viewers into tranquility. The series provides mesmerizing imagery slowly narrated by celebrities. Calm’s co-founder describes the 30-minute episodes as visual Valium. The series launched on October 1st, and you can view the official trailer here, and the Disney Water trailer here.
Creators of mindfulness-related content are tapping into a meditation phenomenon called ASMR – autonomous sensory meridian response – which is a feeling of relaxation that some people experience when listening to certain everyday tactile sounds recorded in a quiet, repetitive manner. Rather than entertain, this content aims to lull viewers into a state of quietude. One company is streaming episodes of The Joy of Painting with Bob Ross which was the landscape painting show that launched on PBS in the early 1980s. The host’s gentle whispering apparently triggers an ASMR response and helps people find inner peace. Viewers are so drawn to Ross’s soothing voice and the brushing and scraping sounds of his painting that the show has drawn 3.3 million unique monthly views since its re-launch earlier this year.
The demand for this type of de-stressing includes not only streaming video but also mindfulness and meditation apps, such as Headspace, Calm, and 10% Happier which have seen a surge in usage. These apps promise the benefits of increased focus, stress reduction, and better sleep and include breathing programs, stretching exercises, guided meditations, sleep stories, along with relaxing music and soundscapes to help users achieve serenity. Calm, the number one meditation app, was downloaded more than 1 million times in October 2020. The company brilliantly and humorously sponsored CNN’s coverage of Tuesday night’s election returns with its logo appearing on screen with CNN’s Key Race Alerts. The brand also aired 30-second spots of rain falling on leaves and other comforting commercials reminding viewers to relax and breathe during the broadcast. The Calm app then climbed up 20 ranks to reach #79 overall across all apps and games in the U.S., and reached the number one Health and Fitness spot. For those who aren’t ready to spend the $69.99 annual membership fee to get the app, the company is currently offering free calming tools on its website here to help Americans “calm together” during this stressful time.
So, breathe in, hold, breathe out, and carry on.
Important Disclosure: The information contained in this presentation is for informational purposes only. The content may contain statements or opinions related to financial matters but is not intended to constitute individualized investment advice as contemplated by the Investment Advisors Act of 1940, unless a written advisory agreement has been executed with the recipient. This information should not be regarded as an offer to sell or as a solicitation of an offer to buy any securities, futures, options, loans, investment products, or other financial products or services. The information contained in this presentation is based on data gathered from a variety of sources which we believe to be reliable. It is not guaranteed as to its accuracy, does not purport to be complete, and is not intended to be the sole basis for any investment decisions. All references made to investment or portfolio performance are based on historical data. Past performance may or may not accurately reflect future realized performance. Securities discussed in this report are not FDIC Insured, may lose value, and do not constitute a bank guarantee. Investors should carefully consider their personal financial picture, in consultation with their investment advisor, prior to engaging in any investment action discussed in this report. This report may be used in one on one discussions between clients (or potential clients) and their investment advisor representative, but it is not intended for third-party or unauthorized redistribution. The research and opinions expressed herein are time sensitive in nature and may change without additional notice.