Last week, shares and bonds in emerging markets, along with high-yield bonds outside the US, demonstrated impressive returns for the major asset classes. The performance was largely buoyed by a weakening US Dollar Index, which is nearing a 2.5-year low. As a result, foreign markets notably influenced trading activities through Friday, October 23.
Several significant developments occurred recently:
- Europe is implementing new Covid-19 restrictions as cases surge: WSJ
- Five aides to VP Pence have tested positive for the coronavirus: CNN
- Investor sentiment looks at last week’s rise in bond yields to a four-month high: CNBC
- China plans to impose sanctions on several US companies over arms sales to Taiwan: BBG
- House Speaker Pelosi is awaiting a new stimulus counteroffer from the White House: BBG
- Academics suggest that the momentum factor in investing is weaker than perceived: II
- Over 200,000 people have lost power in Northern California ahead of raging wildfires: NBC
- German business sentiment declined in September—the first drop in five months: Reuters
- The US economic recovery gained momentum in September, according to PMI data: IHSM
Christopher Manske
Press release for the book’s publication
“Why do some crises affect the stock market more than others? Wall Street typically suggests that, when crisis hits, investors bide their time because someday, perhaps years later, the markets will come back. This standard approach means waiting through chaos, confusion, and even long-term loss,” said Chris Manske, author of The Prepared Investor. “I was compelled to write this book to tell the true story of crisis investing, which is generally more proactive—and a lot more optimistic—than it seems on the surface.”
Rally in Risk Assets Outside the US: US stocks and bonds have taken a backseat to rallies occurring overseas this week, reinforcing the idea that maintaining a globally diversified portfolio remains relevant. While it is premature to declare the dominance of American risk assets over, the outcomes from this week leave room for speculation about future trends.
Recent PMI survey data for October indicates a decline in the Eurozone economy’s recovery, as a resurgence of coronavirus infections takes a toll on business and consumer activities. Meanwhile, the US economy appears more resilient, despite a recent increase in Covid-19 cases, which could foreshadow economic headwinds in the third quarter. (Refer to the update at the end of this post for encouraging October data published after this article was written.)
During a recent, more civil presidential debate, Trump and Biden discussed vital issues. Notably, Biden advocated for an economic “transition” from oil to renewable energy: AP
Betting against long-term bonds has generally been an unfruitful strategy for decades, and this challenge has become particularly pronounced over the past two years. While there is ongoing debate about whether this time is different, the edge for bond bears may be changing as rising yields impact long Treasury prices, which have dipped below a critical technical support level.
Key updates regarding national security and the political landscape include:
- US national security officials report interference from Russia and Iran in the US election: CNBC
- The Supreme Court nomination is advancing as Democrats plan to boycott the vote: NYT
- Trump and Biden are set to meet for their final debate tonight: AP
- There is record investor demand for the European Union’s debut of ‘social bonds’: CNBC
- German consumer sentiment has noticeably declined in October: GfK
- Purdue Pharma, the maker of OxyContin, is set to plead guilty to federal charges: CNN
- The Fed’s Beige Book reports that US economic activity was generally “slight to modest”: MW
- Debt-to-GDP ratios are surging across Eurozone countries: BBG
Throughout the recovery from the coronavirus market crash in May, large-cap and growth stocks have traditionally led the way. This trend seems to have continued from the pre-pandemic era, yet recent momentum in small-cap equities suggests a potential shift in leadership, based on data from various factor ETFs.
In the realm of politics and economic policy, there have been notable developments:
- The Senate majority leader has expressed skepticism about a stimulus deal: NYT
- The US Department of Justice has filed an antitrust lawsuit against Google: CNET
- The pandemic is reshaping globalization: Politico
- The US healthcare system is facing disruptions due to the aftershocks of the pandemic: AXIOS
- Questions arise regarding the future of the last remaining US-Russia nuclear arms treaty: BBC
- Cathay Pacific Airways plans to cut 5,900 jobs due to the pandemic: Reuters
- The 10-year Treasury yield has reached its highest level since June: BBG
- Next week’s US Q3 GDP report is expected to show a record gain: CNBC
- Single-family housing starts in the US have risen to a 13-year high as of September: CNBC
In summary, while recent economic indicators reflect a complex landscape, there are encouraging signs amid challenges. A focus on diversifying investments and staying informed can help navigate these fluctuations.
