Image courtesy GettyImages/Paul Biris

Programming Note: Today’s Market Sum is guest written by James Chen.

Markets Today

U.S. equity markets were heavily pressured for much of the day on Friday after news broke in the very early hours of the morning that President Trump, the First Lady, and members of the president's staff had tested positive for COVID-19. Some of Friday's market losses were mitigated during the day after House Speaker Nancy Pelosi suggested that aid for the beleaguered airline industry could be upcoming, potentially as part of a broader stimulus bill. But that wasn't enough to prevent tech stocks, in particular, from ending the day deep in the red. By Friday's market close, the S&P 500 was down by 0.96%, the Dow by 0.48%, and the Nasdaq Composite had slid a full 2.22%.

The big economic news of the day was supposed to be the highly anticipated U.S. jobs report, but it was overshadowed by news of Trump's diagnosis. Unfortunately, the news on the employment front was also a negative surprise for the markets. U.S. employers added only 661,000 jobs in September, far fewer than the 800,000 initially forecast, as companies slowed their pace of hiring amid growing uncertainty about the pandemic resurgence and the economic recovery (more about the jobs report below).

As we mentioned earlier in the week, market volatility has stayed persistently at a higher plateau than usual, even as markets have rallied sharply in the past several months. And this elevated volatility is expected to remain well into this new fourth quarter, at the very least until the U.S. presidential election is over in early November. This could likely mean that sudden market sell-offs may be more frequent and pronounced than would typically be the case.

Be prepared.

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Headlines:

Walmart is selling its British supermarket chain Asda for an enterprise value of $8.8 billion. The buyers are British billionaire Issa brothers and private-equity group TDR Capital. Walmart will retain a minority stake and a seat on the board.
U.K. Prime Minister Boris Johnson will intervene in Brexit trade talks himself to try and close a deal before the EU summit in mid-October. He will speak with the European commission president, Ursula von der Leyen, on Saturday afternoon to "take stock of negotiations and discuss next steps." Euro area inflation fell to -0.3% in September from -0.2% in August, which raises hopes for more ECB stimulus in December.
Activist investor Trian Fund Management has taken 9.9% stakes in both Invesco and Janus Henderson, according to The Wall Street Journal. The two positions total roughly $900 million, and Trian is pushing for consolidation to build a large, competitive asset manager that is resilient in the changing industry.
U.S. authorities have charged the owners of BitMEX with operating an unregistered trading platform and failing to implement anti-money laundering procedures. According to the CFTC complaint, the cryptocurrency derivatives trading platform has earned fees of over $1 billion since beginning operations in 2014.
Twilio (TWLO) expects total revenue for Q3 to be more than the previously forecast $401–$406 million. Shares in the cloud communication platform shot up on the news. The company also predicted at least 30% organic annual revenue for the next four years and a 60% to 65% adjusted gross margin over the long term at its Investor Day.

Jobs Fall Short

As noted above, 661,000 jobs were added to the U.S. economy in September, which was much lower than forecast. On a brighter note, the unemployment rate fell to 7.9% from 8.1%, as fewer people filed for claims. Around 51% of the jobs lost since March have been added back, but there are still at least 10.7 million people officially unemployed, according to the U.S. Bureau of Labor Statistics.

The chart above shows the progression of unemployment rates through several years. We see the spike in April, after which it has steadily declined. But we're still very far from previously low levels. The economy has now recovered 11.4 million of the 22 million jobs lost in March and April at the beginning of the pandemic, according to the Labor Department. Job growth, though, is cooling. Today's jobs report was the last before the November election.

Best Q3 Since 2010, but Volatility Is Expected to Remain Elevated

According to BofA Global Research, the recently ended third quarter of 2020 was the best Q3 since 2010 for the S&P 500, which gained 9% this year. This very solid rise for the quarter occurred despite the notably poor performance in September. While the quarterly returns were undoubtedly impressive, BofA expects volatility to remain elevated at least until the November election, based on its analysis of historical trends.

Shown above is the research group's "Asset Quilt of Total Returns," which ranks the returns of different assets year to date in 2020 along with annual returns for previous years. As shown on the table, gold is the top performer thus far this year. This is no surprise, given the safe-haven flows amid historic events and high market volatility, along with the steady decline of the U.S. dollar.

Chart courtesy TradingView

Gold Attempts a Comeback

Speaking of gold, it's certainly made some rather spectacular gains this year. But the price of gold futures has been pulling back rather significantly from its high in early August. As shown on the chart above, this pullback has prompted a sharp breakdown below a key uptrend line extending back to the March lows.

But this bearish dynamic may be poised for a change. Though Friday was a down day overall for the precious metal, it still managed to eke out its best weekly gain in eight weeks. With market volatility already elevated and potentially on a further rise, the flight-to-safety trade could push gold higher in the run-up to the November elections.

The Week Ahead:

First off, here are the year-to-date total returns of each asset class.

Events This Week

Sunday, Oct. 4:

Japanese Services Purchasing Managers' Index (PMI) (September)

Monday, Oct. 5:

Market Holiday in China for National Day
German Services PMI (September)
French Services PMI (September)
Eurozone Services and Composite PMI (September)
Eurozone Retail Sales (August)
U.K. Services and Composite PMI (September)
U.S. Markit Composite PMI and ISM Non-Manufacturing PMI (September)

Tuesday, Oct. 6:

Market Holiday in China for National Day
German Factory Orders (August)
U.K. Construction PMI (September)
U.S. Energy Information Administration Short-Term Energy Outlook
U.S. Trade Balance (August)
U.S. JOLTS Job Openings (August)

Wednesday, Oct 7:

Market Holiday in China for National Day
U.S. Vice Presidential Debate
German Industrial Production (August)
Canadian Ivey PMI (September)
U.S. Federal Open Markets Committee (FOMC) Meeting Minutes

Thursday, Oct. 8:

German Trade Balance (August)
European Central Bank (ECB) Monetary Policy Meeting Account Released
Brazilian Retail Sales (August)
Chinese Caixin Services PMI (September)

Friday, Oct. 9:

Markets Closed in South Korea for Hangul Day
U.K. GDP Estimate (August)
U.K. Manufacturing Production (August)
U.K. Trade Balance (August)
Canada Employment Change (September)

Central Bank Minutes
This week we'll get a glimpse into the thought process of the two largest central banks in the world, as the U.S. Federal Reserve releases minutes this upcoming Wednesday and the European Central Bank releases the account of its monetary policy meeting on Thursday. This should help give us a look into how some of the world's top economic minds are thinking about the state of the current economic crisis and the recovery.

Eurozone Retail Sales
Eurozone retail sales for August are released this upcoming Monday. While the European economy isn't as heavily consumer-driven as the U.S. economy, the Eurozone still relies on consumer spending for more than half its GDP. Retail sales have been hit especially hard by the pandemic, so growth there would target one of the industries most in need of help. Retail sales fell month-over-month in July, after having rebounded for the previous three months as pent-up demand seemingly ran out. One important note was the regional difference as retail sales in Germany, France, and the Netherlands were higher year-over-year, while Spain, Portugal, and Greece were lower. This highlights the divide between poorer and richer Eurozone countries that has plagued the bloc since the European debt crisis. See if that dynamic changes this in August or if the Eurozone also experiences a K-shaped recovery.

Energy Information Administration Forecast
The monthly short-term energy outlook report, released monthly by the Energy Information Administration, is a valuable tool for anyone looking to invest in the energy sector. The next report will be released this upcoming Tuesday. The reports contain a wealth of information on coal, oil, natural gas, and electricity production and prices. Energy companies have suffered all year with the benchmark Energy Select Sector SPDR ETF (XLE) having returned -48.5% this year. If you're trying to pick which stocks you think will recover, the EIA report is a fantastic place to start trying to understand the industry as a whole.

Shares of DexCom fell by 7% today amid a Wells Fargo analyst downgrading the medical devices company from “Equal Weight” to “Underweight,” in addition to lowering its price target from $420 to $350. Activision Blizzard’s stock price fell by over 5% after the video game publisher announced a delayed release for the latest expansion of the highly popular World of Warcraft.

Word of the Day

Nonfarm Payroll

Nonfarm payrolls is the measure of the number of workers in the U.S., excluding farm workers and workers in a handful of other job classifications. This is measured by the Bureau of Labor Statistics (BLS), which surveys private and government entities throughout the U.S. about their payrolls. The BLS reports the nonfarm payroll numbers to the public on a monthly basis through the closely followed “Employment Situation” report.

Photo: Mario Tama/Getty Images

Today in History

Oct. 2, 1990:

The Japanese stock market had its best day yet on record, as the Nikkei 225 index skyrocketed 2,676.55 points, or 13.2%, to close at 22,849.39. Investors were euphoric over rumors that the Japanese government would intervene to stop the crashing Nikkei from falling further, and a buying panic ensued. By mid-day nearly a third of the major Japanese stocks hadn’t even traded, since no sellers could be found to match the swarms of buyers. With sellers so outnumbered, even by day's end nearly 10% of all stocks hadn’t been able to trade and, on the futures market, buyers outnumbered sellers by more than 28,000 to one. Unfortunately, the whole thing turned out to be a "dead-cat bounce," as the Nikkei soon resumed falling.

The New York Times, Oct. 3, 1990, pp. D1, D6; The Wall Street Journal, Oct. 3, 1990, p. C1.