The passing of the US presidential election brought an initial relief rally in stocks this week. Optimistic investors pulled money out of safe haven assets, such as gold and government bonds and world equities posted a second week of gains. Almost every major developed market stock index moved higher.
With the US election mostly out of the way, stocks followed an uneven path to mostly positive returns for the week, adding to the previous week’s sharp gains. One notable exception was the Nasdaq Composite Index, which sank under the weight of retreating “lockdown winners”, such as Amazon.com Inc. and Netflix Inc. Meanwhile, sectors which had been snubbed since March enjoyed vigorous rebounds.
The upbeat mood was bolstered by a bigger-than-expected drop in claims for unemployment benefits in the US, to their lowest level since March. Investors also kept monitoring the likelihood of some sort of fiscal package shortly.
In Latin America, Chile’s IPSA Index returned 5.6%. During the week, the lower chamber of Congress approved the pension withdrawal bill this year and will now be voted on by the Senate. Brazil’s Bovespa was 3.76% higher this week. Colombia’s Colcap returned 3.20% and Mexico’s IPC 5.87%.
Equities posted strong back-to-back weekly performances. Japanese Prime Minister Yoshihide Suga instructed his cabinet on Tuesday to compile a third stimulus package. Japan's Minister of Economic Revitalization Yasutoshi Nishimura revealed the stimulus measures will aid the economic recovery both on a macroeconomic and on a microeconomic level, adding that the government in Tokyo is weighing spending that will attract investments.
However, some economists worry about the impact of the additional spending on the country’s public debt load. Chinese stocks declined slightly for the week. On the geopolitical front, the Trump administration Thursday announced an executive order prohibiting U.S. investment in Chinese firms that Washington says are owned or controlled by the Chinese military. In Australia, it was a good week for the ASX which returned 3.47%.
All major equity markets advanced despite ongoing lockdown measures in key European economies. France said there would be no easing of the lockdown for two weeks, Portugal extended a nightly curfew and weekend lockdown, while Germany’s partial lockdown might be extended into December, Bloomberg reported. In local currency terms, the pan-European STOXX Europe 600 Index returned 5.13% this week.
This was surprising, considering that Germany’s ZEW survey of investor sentiment dropped sharply and marked its second consecutive monthly decline in November. Meanwhile, the EU's industrial output saw a 5.8% decline in September versus the same month of 2019, Eurostat reported on Thursday. In the UK, the FTSE 100 Index surged 6.88% as the UK's GDP grew a record 15.5% in the third quarter of this year.
The reintroduction of more severe social distancing measures or lockdowns across countries, continue to take their toll on growth prospects. Plus the political dust hasn’t settled yet in the US. Certain state results remain contested at this point and the potential for US politics to impact markets still exists, renewing volatility.
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The content of this review is for informational purposes only and should not be interpreted as specific investment advice.