Stocks Rally Despite Uncertain Election Outcome…..

U.S. equities finished with solid gains, continuing this week’s upward momentum following last week’s tumble, despite a still-uncertain presidential election outcome. The markets appeared to dismiss the notion of a “Blue Wave” outcome, with the Information Technology and Health Care sectors rallying. Earnings results took a back seat to the focus on the election, but Hilton posted a sequential improvement in business activity and Wendy’s finished lower after missing revenue forecasts. In other equity news, Uber and Lyft both jumped on results out of California on an employment status measure. In economic news, October services sector reports were mixed but continued to show growth, ADP’s job report missed forecasts, the trade deficit narrowed, and mortgage applications rose, while the Fed began its two-day monetary policy meeting which will conclude tomorrow. Treasury yields came under heavy pressure as bond prices rallied, and the U.S. dollar dipped, while gold was lower and crude oil prices were higher. Equities in Europe closed higher, while markets in Asia were mixed.

The Dow Jones Industrial Average rose 368 points (1.3%) to 27,848, the S&P 500 Index was up 74 points (2.2%) at 3,443, and the Nasdaq Composite soared 430 points (3.9%) to 11,591. In heavy volume, 995 million shares were traded on the NYSE and 3.3 billion shares changed hands on the Nasdaq. WTI crude oil was $1.49 higher at $39.15 per barrel and wholesale gasoline added $0.03 to $1.11 per gallon. Elsewhere, the Bloomberg gold spot price lost $6.48 to $1,902.69 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.1% lower to 93.43.

ADP report misses, trade deficit narrows, services sector data on deck, Fed meeting set to start…..

The ADP Employment Change Report showed private sector payrolls rose by 365,000 jobs in October, well below the Bloomberg forecast calling for a 643,000 gain. September’s rise of 749,000 jobs was revised to a 753,000 increase. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader October nonfarm payroll report, expected to show headline employment grew by 600,000 jobs and private sector jobs rose by 700,000. The unemployment rate is forecasted to decline to 7.6% from 7.9% and average hourly earnings are projected to rise 0.2% month-over-month (m/m), and be up 4.5% y/y.

The October Institute for Supply Management (ISM) non-Manufacturing Index showed expansion in the key services sector (a reading above 50) slowed slightly more than expected, declining to 56.6 from September’s 57.8 level, and below forecasts of a dip to 57.5. The index missed forecasts as the new orders component declined 2.7 points to 58.8, the business activity portion decreased to 1.8 points to 61.2, and employment was down 1.7 points to 50.1. The ISM said, “Respondents’ comments are cautiously optimistic about business conditions and the economy. There is a degree of uncertainty due to the pandemic, capacity constraints, logistics and the elections.”

The final Markit U.S. Services PMI Index for October was unexpectedly revised higher to 56.9 from the preliminary estimate of 56.0, where it was forecasted to remain. The index was up from September’s 54.6 figure and the 50.6 reading a year ago. A reading above 50 denotes expansion. Markit’s release is independent and differs from the ISM report, as it has less historic value and Markit weights its index components differently, while its survey respondents include those that vary more in size, including small and medium-sized companies.

The trade balance showed that the September deficit narrowed as expected, coming in at $63.9 billion versus August’s downwardly-revised deficit of $67.0 billion. Exports rose 2.6% m/m after August’s 2.2% gain, and imports increased 0.5% after the prior month’s 3.2% rise.

The MBA Mortgage Application Index rose by 3.8% last week, following the prior week’s 1.7% gain. The increase came as a 6.4% rise in the Refinance Index more than offset a 1.3% decrease in the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 3.01%.

The Federal Open Market Committee (FOMC) began its two-day monetary policy meeting today, which will conclude tomorrow and is expected to deliver no change to its monetary policy stance and be void of any new economic projections. However, tomorrow’s press conference by FOMC Chairman Jerome Powell is expected to be closely monitored for clues to what the Central Bank is focusing on amid the backdrop of the resurgence of new COVID-19 cases, the festering political uncertainty, and the continued delay of any new fiscal relief measures.

Treasuries were solidly higher, as the markets grappled with the uncertainty regarding the presidential election outcome after yesterday’s drop leading up to the contest. The yield on the 2-year note dipped 2 bps to 0.14%, while the yields on the 10-year note and the 30-year bond dropped 11 bps to 0.77% and 1.55%, respectively.

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