Today’s U.S. reports revealed disappointing construction spending figures through September, but a big October ISM gain, leaving a mixed set of readings that trimmed Q3 prospects but boosted the outlook slightly for Q4. Construction spending rose just 0.3% in September after modest net upward revisions in all the major components except public construction, leaving data that were lower than expected on net.
We now expect a Q3 GDP growth trimming to 32.9% from 33.1%, followed by an estimated 6.4% Q4 pace. The ISM surged to a lofty 2-year high of 59.3 from 55.4, new orders rose to a 17-year high of 67.9 from 60.2, and the jobs index rose to a 1-year high of 53.2 from 49.6. The ISM-adjusted average of the major sentiment surveys is climbing to a robust 58 in October from 56 in September and 54 in July and August, leaving some upside risk for our 750k October nonfarm payroll estimate.
The Dow (1.6%), Oil (0.89), and Gold (.51%) are all up in the first couple of hours of trading. Investors are wondering why the market is up this morning and the short answer is that the ISM Manufacturing Index came in positive at 59.3 vs 55.8 expected! In fact, the October ISM is the highest since November 2018. This is just one of the recent economic reports that have been extremely positive. Unfortunately, this may be just a short-term bump until the election uncertainty kicks in tomorrow.
However, the stock market has just recorded its worst week since the beginning of June because of the election uncertainty and concerns about the record spread of Coronavirus, which resulted in a new phase of containment in several European countries. The markets globally this week are BEARISH with the S&P500 is down 5.8%, Nikkei lost 2.3%, and Dax down more than 8.5% Many investors are SELLING on this fear, resulting in an increase in market volatility and BEARISH trend. Unfortunately, we don’t expect any significant change in investor sentiment soon because neither the CORONAVIRUS nor ELECTION issues will be resolved soon.
Looking at the S&P 500 chart above, we can see the S&P 500 about to break through support while VIX is skyrocketing. This is a very bad sign for the equities and signals a strong BEAR trend. The primary driver is the election and unfortunately, we may be stuck here for weeks until there is a clear winner of the Presidential election. In addition, there are threats of violence nationwide surrounding the election. Large cities such as DC, Miami, Atlanta, Chicago, etc are preparing for major civil unrest.
Vincent Vallelong, VP of New York-based Sergeants Benevolent Association, stated that he hadn’t seen such disaster preparation in his city since the 9/11 terrorist attacks. “Stuff like this was done during 9/11 when everybody went to 12-hour tours, but they basically put the whole job on alert right now,” Vallelong said. “I’d be lying to you if I said I wouldn’t be worried,” he continued. “We’ve already seen cops get assaulted in New York the last time this broke out. This is something not to take lightly right now.”