Things That Make You Go Hmmm…
By: George Boyan
Leumi USA Capital Markets is ready and able to facilitate any client transactions ahead of Election Day, but the most likely scenario is that we will not know the outcome for several more days. The Supreme Court of the United States has granted several states, including the swing state of Pennsylvania, additional time to count mail-in ballots. There is now no question that additional stimulus will wait until after the election, and the side who wins the Presidency will likely also dictate the terms of that deal as well. Until then, its business as usual—watching the evolution of the coronavirus disease and final polling projections.
By: Ariel Segal
GDP surged a record annualized rate of 33.1% in the third quarter, as reported on Thursday last week. Personal consumption was the most significant factor to growth, increasing by over 25%. Most of the gains in the economy were achieved at the beginning of Q3.
New and existing home sales combined have reached levels not seen since 2006. Record-low mortgage rates and desire for more space in the suburbs initiated a housing boom this year.
Tomorrow is election day and although the Presidential race is the headliner, whether the democrats take control of the Senate or not will be an important factor in determining the nature and size of the stimulus bill that will eventually be passed. Republicans are defending 23 of 35 Senate seats. If Biden was to win, democrats would need a net gain of 3 seats to secure Congress and the presidency as Kamala Harris would be the one to break 50-50 ties.
Fixed Income Market:
By: Joseph Colleran
In front of tomorrow’s elections, the corporate market remains in “risk off” mode as spreads widened for the third consecutive week. Investment Grade spreads were out another 5 basis points and are now at their widest spreads to USTs since early July. Meanwhile, HY spreads were wider by 30 bps as HY funds mirrored the selloff in equities and saw $3.3 BLN in outflows on the week overall trade volumes remain light as many investors have stepped to the sidelines in front of the election.
Lipper Fund flow data for the week showed:
Domestic Equity Funds down $5.1 BLN
IG Bond Funds up $3.3 BLN
HY Bond Funds down $2.5 BLN
Municipal Bond Funds up $0.54 BLN
MMKT Funds down $6.4 BLN
Domestic Equity Funds down $4.7 BLN
IG Bond Funds up $6.7 BLN
HY Bond Funds up $0.16 BLN
Municipal Bond Funds up $0.73 BLN
MMKT Funds down $9.1 BLN
By: James Zurovchak
Last week the markets suffered their biggest weekly loss since the Covid-Crash back in March. DJI led the way lower, down 6.47%, with S&P and NASDAQ down 5.62% and 5.5% respectively. Among the reasons for the selloff is the resurgence of Covid-19 causing Great Britain to lockdown and Europe to consider the same. In the US, New York has instituted testing and quarantine restrictions for those entering from out of the tri-state area. Other pundits point to a risk off mentality as we head to election day. While still others point to a continued pullback from the early September all-time high. Whatever the reason, fear and uncertainty may be creeping back into the market as evidenced by the VIX briefly hitting 40. No surprise then that all 11 GICS sectors were down substantially with Consumer Discretionary (-6.55%) and Industrials (-6.53%) leading the way lower and Utilities declining the least at -3.66%. Neither Value nor Growth was a place to hide as they were down 5.48% and 5.6% respectively. This week the three main areas of focus will continue to be the Covid resurgence, the economic recovery and the US elections, not necessarily in that order. The phrase used the most entering the week will likely be “Buckle Up”.
By: Anthony Minardo
The trading week begins with an increase in volatility and a reduction of risk with the US election just one day away, and increasing COVID-19 cases in Europe and the U.S.
The U.K. has become the latest European country to announce a nationwide lockdown to Join Germany and France. The FOMC will meet on Thursday for their November policy meeting where we expect rates to remain unchanged. We will closely monitor the language of the Fed as the delay in a fiscal stimulus plan and increasing cases of COVID may bring a dovish tone to the meeting and hint additional easing in the near future. Major data releases this week consist of unemployment (7.9% exp.) and non-farm payrolls (+775k exp. Oil begins the week down -1.5% trading at $35.30. Large layoffs by Boeing and decreasing travel due to the virus continue to hinder traveling and the recent oil rally.
By: Brian Stigliano
Using a 529 Plan for Qualified Education Expenses
529 Plans are investment accounts that allow one’s money to grow tax-free if the proceeds are used for post-secondary (i.e. – college level and above) qualified education expenses including tuition, room and board, books, technology, etc. As of 2018, the plans can also be used to pay for up to $10,000 per year in elementary or high school tuition expenses.
Account owners can withdraw money from the plans at any time, but if the proceeds are not used for qualified education expenses then the investment gains will be subject to taxes and a 10% penalty. If a child receives a scholarship, the 10% penalty would be waived up to the amount of the scholarship; however, taxes would still apply. Unused balances can also be transferred to eligible family members (i.e. – siblings, cousins, nieces and nephews).
Lastly, 529 Plans are state run, but one is not required to use a plan in his or her home state. Likewise, the balances can be used for expenses at a college in a separate state. Some plans offer state income tax deductions, so it’s best to check with one’s tax advisor for guidance.
Last Week's Economic Data for 11/2
|Last Week's Economic Data||Actual||Survey|
|Durable Goods Orders||1.9%||0.5%|
|Wholesale Inventories MoM||-0.1%||0.4%|
|Initial Jobless Claims||751k||775k|
|GDP Annualized QoQ||33.1%||31.9%|
This Week's Economic Data for 11/2
|This Week's Economic Data||Release Date||Survey|
|Durable Goods Orders||11/03/20||1.9%|
|Initial Jobless Claims||11/05/20||735k|
|FOMC Rate Decision (Upper Bound)||11/05/20||0.25%|
|Change in Nonfarm Payrolls||11/06/20||600k|
Market Data for 11/2
|1 Month Libor||0.14%||(1.1 bp)||+0.1 bp||(163.4 bp)|
|3 Month Libor||0.22%||(0.2 bp)||(1.3 bp)||(167.0 bp)|
|6 Month Libor||0.25%||(0.0 bp)||+0.1 bp||(165.6 bp)|
|12 Month Libor||0.33%||+0.0 bp||(2.5 bp)||(159.3 bp)|
|Fed Funds Effective||0.09%||(173.0 bp)|
|SOFR||0.09%||+0.0 bp||+1.0 bp||(173.0 bp)|
|US Treasury Yields||Current||WoW||MoM||YoY|
|12-Month||0.12%||(0.3 bp)||+0.5 bp||(140.1 bp)|
|2-Year||0.15%||+0.5 bp||+2.6 bp||(139.8 bp)|
|3-Year||0.19%||+0.3 bp||+2.9 bp||(135.0 bp)|
|5-Year||0.37%||+2.2 bp||+8.7 bp||(116.9 bp)|
|7-Year||0.62%||+4.8 bp||+13.7 bp||(100.9 bp)|
|10-Year||0.84%||+0.5 bp||+2.6 bp||(139.8 bp)|
|30-Year||1.62%||+0.5 bp||+2.6 bp||(139.8 bp)|
|US Swap Rates vs 3ML||Current||WoW||MoM||YoY|
|12-Month||0.21%||(0.4 bp)||(0.7 bp)||(153.5 bp)|
|2-Year||0.24%||(0.1 bp)||+1.5 bp||(139.7 bp)|
|3-Year||0.28%||+0.1 bp||+3.2 bp||(131.6 bp)|
|5-Year||0.43%||+1.0 bp||+7.4 bp||(114.2 bp)|
|7-Year||0.62%||+2.1 bp||+10.9 bp||(99.1 bp)|
|10-Year||0.86%||+2.5 bp||+13.1 bp||(84.3 bp)|
|30-Year||1.26%||+0.8 bp||+13.5 bp||(62.0 bp)|
|US Swap Spreads||Current||WoW||MoM||YoY|
|12-Month||+9 bp||(0.1 bp)||(1.2 bp)||(13.3 bp)|
|2-Year||+8 bp||(0.6 bp)||(1.0 bp)||+0.0 bp|
|3-Year||+8 bp||(0.3 bp)||+0.3 bp||+3.4 bp|
|5-Year||+6 bp||(1.3 bp)||(1.4 bp)||+2.8 bp|
|7-Year||+0 bp||(2.7 bp)||(2.8 bp)||+1.8 bp|
|10-Year||+1 bp||+1.9 bp||+10.5 bp||+55.5 bp|
|30-Year||(36 bp)||+0.3 bp||+10.9 bp||+77.7 bp|
|Dow Jones||26,835||+1.3%||(3.1 %)||(1.9 %)|
|S&P 500||3,299||+0.9%||(1.5 %)||+7.6%|
|NASDAQ||10,904||(0.1 %)||(1.5 %)||+30.0%|
|Euro||1.1626||(1.6 %)||(0.8 %)||+4.5%|
|Japanese Yen||104.8600||(0.0 %)||+0.4%||+3.5%|
|British Pound||1.2903||(0.9 %)||(0.2 %)||+0.1%|
|Canadian Dollar||1.3256||(0.3 %)||+0.4%||(0.8 %)|
|Australian Dollar||0.7040||(1.2 %)||(1.7 %)||+2.3%|
|Swiss Franc||0.9204||(1.4 %)||+0.0%||+7.3%|
|Israeli Shekel||3.4106||(0.5 %)||+0.7%||+3.0%|
|Gold||1,893||(0.5 %)||(0.4 %)||+25.0%|
|Crude Oil||37||(5.3 %)||(1.4 %)||(35.0 %)|
Source: Bloomberg L.P.
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