Stocks sold off last week as COVID-19 cases spiked in the U.S. and Europe, renewed lockdowns were announced across Europe, and uncertainty around the timing of stimulus and the election outcome continued.

However, we remain optimistic that a sustainable economic recovery is unfolding that will ultimately support stock prices—despite headwinds facing economic sectors most exposed to the virus and limits placed on certain activities.

Considering the majority of Americans are in favor of a follow-on stimulus package, we expect one to be passed that will support the sectors most in need. This follow-on stimulus is now likely to be a post-inauguration event. We also do not expect any future lockdowns to be as severe as we saw in the spring and we remain encouraged by the therapeutics to treat the virus and the potential for a vaccine.

Third-Quarter GDP Report Shows Record Recovery

After the historic collapse in economic activity during the second-quarter lockdown, third-quarter economic activity rebounded at a record 33% annual rate. The unprecedented speed and size of fiscal and monetary stimulus applied starting in March prevented an even deeper slide in the second quarter and laid the groundwork for the rebound in the third. Even with this impressive rebound, the economy remains 3.5% below where it was pre-pandemic, which highlights the need for additional fiscal support.

Nearly all components of the economy increased significantly in the third quarter, led by consumer spending (up at a 41% annual rate) and residential investment (up at a 59% annual rate). This speaks to the health of the consumer that was supported by stimulus checks and enhanced unemployment benefits. Importantly, consumers were very healthy heading into the pandemic.

The health of the consumer was highlighted on Friday in September’s personal income report, which showed income increasing a better-than-expected 0.9% month/month—despite a decline in transfer payments (i.e., the end of $600/week extra unemployment benefits, and the fading of the extra $300/week). Supporting consumption, the labor market continues to heal—albeit not as fast as everyone wants. Initial unemployment claims and continuing claims continued to grind lower last week.

Corporate Profits are Better-Than-Expected

With over 73% of the S&P 500’s market capitalization having reported results, earnings have surpassed estimates by +19.2% in aggregate, with 84% of companies beating their projections. Health Care and Technology continue to show earnings leadership.

Remaining Encouraged by Chinese Data

We continue to follow China’s economic readings closely as they were the first in and first out of the pandemic lockdowns. The business surveys and corporate executive comments on third quarter earnings calls continue to suggest China’s economic rebound remains strong.

All of this has us remaining confident on a sustainable economic recovery regardless of who wins the election, and despite delays in stimulus and uncertainty created by the path of the virus.

This report is provided for informational and educational purposes only and shall in no event be construed as an offer to sell or a solicitation of an offer to buy any securities or a recommendation for any strategy or to buy, sell, or hold any product. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed here. The information described herein is taken from sources which we believe to be reliable, but the accuracy and completeness of such information is not guaranteed by us. The opinions expressed herein may be given only such weight as opinions warrant. This Firm, its officers, directors, employees, or members of their families may have positions in the securities mentioned and may make purchases or sales of such securities from time to time in the open market or otherwise and may sell to or buy from customers such securities on a principal basis. This report is the intellectual property of Janney Montgomery Scott LLC (Janney) and may not be reproduced, distributed, or published by any person for any purpose without Janney’s prior written consent. This presentation has been prepared by Janney Investment Strategy Group (ISG) and is to be used for informational purposes only. In no event should it be construed as a solicitation or offer to purchase or sell a security. Past performance is no guarantee of future performance and future returns are not guaranteed. There are risks associated with investing in stocks such as a loss of original capital or a decrease in the value of your investment. For additional information or questions, please consult with your Financial Advisor.

About the author

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

To learn about the professional background, business practices, and conduct of FINRA member firms or their financial professionals, visit FINRA’s BrokerCheck website: