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Markets Developments Ahead of the U.S. Elections

October 16, 2020 By Mircea Vasiu

With only two full trading weeks ahead of the U.S. elections, it is important to review where financial markets stand and what are some interesting developments. If we look at what happened prior to other major elections, the market will squeeze into tighter ranges until the final breakout during/shortly after the election day. 

U.S. Unemployment A Major Headache

Yesterday’s Initial Jobless Claims in the United States revealed that there is little or no improvement in the labor market. To this day, over twenty-five million Americans receive unemployment aid.

Because of an exogenous factor responsible for the high unemployment number (i.e., coronavirus pandemic), no one can blame the administration in charge. However, one can only imagine the difficulty of having to make ends meet during a pandemic, having no job, and living on unemployment benefits.

This is the main problem in America ahead of the elections.

Fed Appeals for More Fiscal Stimulus

Fed’s Powell appealed lately for more fiscal stimulus. He highlighted the lending abilities of the Fed, but the help should come from Congress.

This is one thing that drove financial markets lately – the fiscal stimulus. However, no matter how bit it will be, if it comes before or after the elections, it will bring just temporary relief. Yes, for the stock market will mean a boost because people will spend the money on goods and services of companies listed on the stock market. Hence, with demand in place, corporate America will easily beat earnings.

Only this is a short-term solution. In the medium to long term, more needs to be done.

Oil Market Developments

The price of oil recovered in the last several months and holds relatively stable around $40. In a recent interview, the CEO’s of Vitol, Trafigura, and Gunvor (oil trading houses) forecasted the price of oil for October 2021 between $50 and $55. What is even more interesting is that the forecast for 2030 was only slightly higher – between $55 and $60.

Price stability is on central banks’ mandate, and oil stability helps them deliver.

Stock Market Ahead of the U.S. Elections

Ahead of such an important event, both bulls and bears prepare way ahead of time. As always, the bearish bets attract more headlines. One is that insiders disclosed selling $287.1 million shares at the start of October. At the same time, purchasing only reached $13 million. It tells us that insiders take precautionary measures ahead of the elections? Or that the market reached a top?