Week Ahead: Stocks, Dollar To Fall On Post-Election Profit-Taking; Gold Higher

 | Nov 08, 2020 07:00AM ET

  • Stocks closed lower on Friday after their strongest week since April
  • Dollar triggers signals of a continued downtrend
  • Gold technicals pointing toward another rally

    • Even before the US presidential election was officially declared for Joe Biden on Saturday, investors were already signaling on Friday that they favored the impending power split between Democrats in the White House and a divided Congress, which would ensure that tax cuts and deregulation—strong tailwinds for some of the biggest market gains in a decade—remain in place. The S&P 500 edged lower on the final day of the trading week, but the broad benchmark gave up less than 0.05% at the close.

    Friday's down day ended a powerful four-day rally that provided equities their biggest weekly gain since April, after the dead cat bounce that followed the March bottom, adding $1.5 trillion to the value of shares.  As well, tech stocks continued to outperform, with the NASDAQ indices gaining every day last week, climbing at least 9% over the course of five days.

    h2 Selling The News But Buying The Expectation/h2

    According to one narrative, the broader market declined as Biden neared winning the presidency because indices were pricing out a Blue Wave that hadn't occurred. On the other hand, the much-anticipated, massive virus relief package the Democrats were touting isn’t going to be so easy to pass with the current political divide. In the final analysis, Friday’s decline conveys the feeling of selling the news of a Biden win while the preceding rally may have been on the rumor, or expectation.

    Economic releases last week offered some good news: the American economy kept growing despite continuing to hit record numbers of COVID-19 infections, after the US became the first country to top 100,000 new coronavirus cases in a day. The world’s largest economy created 638,000 new jobs in October, beating estimates that ranged from 503,000 to 600,000. Unemployment declined to 6.9%, better than the expected 7.7% and down from 7.9% in September—the lowest for this metric since the pandemic began.

    Though the better-than-expected jobs market didn’t seem to help the broader equity market, the tech-heavy NASDAQ indices appear to have been boosted by the stronger hiring in technology fields. Still, many economists warn that the jobs market is much worse than one Nonfarm Payrolls release suggests.

    A broader measure, the U6 Unemployment Rate, which includes those who stopped looking for work or compromised by taking part-term work, fell in October, but remained much higher overall at 12.1%. Economists consider this the real unemployment rate. In the final analysis, using this metric, roughly 10 million jobs—almost half of the 22 million that were been wiped out when the coronavirus hit the economy—have not yet been recovered.

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    Fundamentally it's not completely clear why investors would have sold off risk ahead of the weekend after such robust gains during the week and an end to the election uncertainty in sight, but technicals could offer a reason why stocks would pause at this point.