Things That Make You Go Hmmm…
By: George Boyan
U.S. Nonfarm Payrolls recorded a gain of 661 thousand jobs for the month of September, missing expectations of 859 thousand. Also, the unemployment rate ticked down from 8.4% to 7.9%.
Cumulatively, the U.S. economy has recovered 11.4 million of the 22.2 million jobs lost during the unprecedented coronavirus-induced economic shutdown, representing 51% of those jobs lost. In fact, over the past 20 years, the average number of jobs gained per month is just 39 thousand, and September’s release was approximately 17 times average.
This should be a cause for celebration. And yet the equity market was initially disappointed, marked by the S&P 500 selling off approximately 1% on the release. Even during the Vice Presidential debate, in asking a question to Mr. Pence, the moderator stated “the job growth has stalled.”
We view the labor market as a tailwind for further economic recovery propelling sustained growth into mid-2021.
By: Ariel Segal
Continuing unemployment claims decreased last week to 10.976mm. Though the pace of recovery has slowed since August, it is nonetheless an improvement. California has stopped processing claims as it is reviewing internal controls and possible instances of fraud.
Stimulus talks continue between Speaker Pelosi and Secretary Mnuchin trying to reach a compromise between the Democrat’s $2.2 trillion proposal and the White House’s $1.8 trillion offer. President Trump is now in full favor of a deal to occur before the election, but most say there is little chance of getting legislation written and passed by Congress before Nov. 3rd.
Judge Amy Coney Barrett began the first of two days of questioning by the Senate Judiciary Committee today. She is expected to be confirmed before the election.
Fixed Income Market:
By: Joseph Colleran
Last week saw the credit markets embrace the “reflation trade” as spreads on corporates tightened significantly. This was particularly acute in the HY market as the riskier credits tightened an average of 25 basis points. This was driven by strong cash inflows that reversed the trend of recent weeks (see table below). Retail corporate bond activity remained light as few seem enticed by the relatively low yields available and many participants remain on the sidelines leading up to the Presidential election just three weeks from today. We continue to see good demand for Structured Notes as high volatility and rising equity markets create attractive opportunities for our clients. Despite a slight widening in municipal bonds we saw little client interest in the sector.
Lipper Fund flow data for the week showed:
Domestic Equity Funds down $ 3.5BLN
IG Bond Funds up $7.1 BLN
HY Bond Funds up $4.1 BLN
Municipal Bond Funds up $1.5 BLN
MMKT Funds down $20.4 BLN
Domestic Equity Funds down $ 3.3BLN
IG Bond Funds up $2.1 BLN
HY Bond Funds down $3.6 BLN
Municipal Bond Funds down $660 MLN
MMKT Funds down $13.9BLN
By: James Zurovchak
At the beginning of last week, the question was whether we get the “20-50 cross” lower or a bounce off the 50 day SMA with a move higher. The market answered with the bounce and a move higher. NASDAQ led the way with a 2.19% move up followed by S&P 500 and DJI gaining 2.05% and 1.58% respectively. The move was broad based with all 11 GIC sectors positive on the week. Technology and Communication Services lead the charge with Real Estate lagging, but still positive. Growth slightly outgained Value 2.24% vs 2.16%. Equity markets were opened on Columbus Day yesterday and put in a strong day. Market sentiment seems to be that a Biden victory coupled with a congressional blue wave would mean a substantial stimulus plan would be passed and this would outweigh any negatives from corporate taxes being raised. With Biden’s lead in polls in key swing states increasing, the market seems to be responding in kind. President Trump has now had multiple negative Covid tests and is back on the campaign trail. It remains to be seen whether he gains any momentum in the polls and whether the markets respond. Meanwhile, the resurgence of Covid globally continues to creep higher, but the markets don’t seem to be overly concerned.
By: Anthony Minardo
The USD remains steady and widespread risk sentiment has been driven on the assumption that a phase 4 stimulus deal will be agreed upon in the upcoming weeks.
Global economic recoveries have stalled as a second wave of COVID-19 have spread throughout Europe, and increasing concerns of a reoccurrence in the U.S. The upcoming U.S.
Presidential elections will add volatility to the markets as we approach election day. An abundance of economic data this week, CPI (Tuesday), PPI (Wednesday), and industrial production and retail sales (Friday) could move the dollar out of its recent range.
By: Brian Stigliano
Estate Planning Strategies
With the elections less than a month away, there is a distinct possibility that we will see a “blue wave” which could lead to significant tax changes for high-net-worth and ultra-high-net-worth families. Therefore, it may be a great time to take advantage of low interest rates, volatile markets, and a high federal estate tax exemption to more efficiently transfer wealth to future generations.
Use of irrevocable trusts:
- Grantor Retained Annuity Trust – used to gift an asset to the trust but maintain an income stream from it
- Intentionally Defective Grantor Trust – used to freeze the value of certain assets to potentially reduce the size of an estate
- Qualified Personal Residence Trust – used to remove the value of a residence from an estate while maintaining use of the residence
- Charitable Remainder Trust – used to gift an asset to a charity but maintain an income stream from it
- Irrevocable Life Insurance Trust – used to remove the death benefit proceeds from the value of an estate
You can create a Family Limited Partnership (FLP) to maintain control of the business interests.
You can gift $15,000 per year to as many people as you like without paying a gift tax or using your lifetime exclusion.
You can pay an unlimited amount of one’s education or medical expense in any given year as long as the institution is paid directly.
Last Week's Economic Data for 10/13
|Last Week's Economic Data||Actual||Survey|
|Initial Jobless Claims||840k||820k|
This Week's Economic Data for 10/13
|This Week's Economic Data||Release Date||Survey|
|PPI Final Demand MoM||10/14/2020||0.20%|
|Initial Jobless Claims||10/15/2020||825k|
|Retail Sales Advance MoM||10/16/2020||0.80%|
|Source: Bloomberg L.P.|
Market Data for 10/13
|1 Month Libor||0.15%||+0.9 bp||(0.4 bp)||(176.5 bp)|
|3 Month Libor||0.24%||+0.7 bp||(1.4 bp)||(176.4 bp)|
|6 Month Libor||0.25%||+1.5 bp||(2.7 bp)||(172.1 bp)|
|12 Month Libor||0.35%||+0.2 bp||(6.8 bp)||(161.0 bp)|
|Fed Funds Effective||0.09%||(173.0 bp)|
|SOFR||0.09%||(0.0 bp)||(176.0 bp)|
|US Treasury Yields||Current||WoW||MoM||YoY|
|12-Month||0.12%||+0.5 bp||(0.5 bp)||(151.2 bp)|
|2-Year||0.14%||(0.6 bp)||+1.4 bp||(145.0 bp)|
|3-Year||0.18%||(0.1 bp)||+2.6 bp||(138.8 bp)|
|5-Year||0.31%||(0.6 bp)||+5.4 bp||(124.9 bp)|
|7-Year||0.51%||(0.4 bp)||+6.3 bp||(113.4 bp)|
|10-Year||0.73%||(0.6 bp)||+1.4 bp||(145.0 bp)|
|30-Year||1.52%||(0.6 bp)||+1.4 bp||(145.0 bp)|
|US Swap Rates vs 3ML||Current||WoW||MoM||YoY|
|12-Month||0.22%||(0.5 bp)||(1.5 bp)||(156.7 bp)|
|2-Year||0.23%||(0.4 bp)||+1.3 bp||(141.2 bp)|
|3-Year||0.26%||(0.2 bp)||+3.5 bp||(131.4 bp)|
|5-Year||0.38%||(0.1 bp)||+5.9 bp||(116.6 bp)|
|7-Year||0.55%||+0.2 bp||+7.2 bp||(103.1 bp)|
|10-Year||0.77%||+0.5 bp||+8.7 bp||(88.7 bp)|
|30-Year||1.18%||+1.0 bp||+13.1 bp||(63.6 bp)|
|US Swap Spreads||Current||WoW||MoM||YoY|
|12-Month||+9 bp||(1.0 bp)||(1.0 bp)||(5.5 bp)|
|2-Year||+9 bp||+0.1 bp||(0.1 bp)||+3.9 bp|
|3-Year||+9 bp||(0.1 bp)||+0.9 bp||+7.4 bp|
|5-Year||+8 bp||+0.6 bp||+0.5 bp||+8.2 bp|
|7-Year||+4 bp||+0.6 bp||+1.0 bp||+10.3 bp|
|10-Year||+4 bp||+1.0 bp||+7.3 bp||+56.4 bp|
|30-Year||(33 bp)||+1.6 bp||+11.7 bp||+81.4 bp|
|Dow Jones||28,756||(0.3 %)||+3.9%||+7.2%|
|S&P 500||3,517||(0.5 %)||+5.3%||+18.4%|
|Australian Dollar||0.7158||+0.8%||(1.8 %)||+5.7%|
|Swiss Franc||0.9146||+0.4%||(0.7 %)||+9.0%|
|Crude Oil||40||(1.0 %)||+7.8%||(26.4 %)|
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