From Jonathan Bayes, consultant Chief Investment Officer, Bentleys Wealth Advisors
85 Days until the U.S Presidential Election
And so we start the downward run towards the US Presidential Election, certainly the most significant catalyst for investment portfolios in the coming months.
85 days to go.
At risk of over-simplifying matters, the election to be held on November 3rd pits Wall Street against Main Street and corporations against individuals.
This is certainly a sweeping statement, but from the perspective of investment markets this is precisely how it will be viewed.
Under a Biden Presidency, corporate regulation and taxation will rise, the latter from 21% to 28%, social benefit programs will be expanded and minimum wages will be raised.
Given the wide gap divergence between policy platforms between the two candidates it is highly likely that market volatility will rise as Election Day draws closer – we would remind you of the Morgan Stanley research we shared a month or so ago which showed that US equity markets typically fell by around -5% in the period from August 1st until Election Day during Presidential election years.
Further exacerbating the potential for volatility is the enormous uncertainty in relation to containment of COVID-19, the efficacy and safety of any successful vaccine candidates, the public’s willingness to get vaccinated and hence the ability for society to return to any semblance of typical mobility.
Early vaccine trial data from the leading candidate (Vaccitech in Oxford in cahoots with pharma major Astra Zeneca) should start to emerge from mid-September onwards.
In the United States, return to school dates in late August and early September will be important markers for investors, as will the relative success or failure of major sporting schedules such as the NFL season and college football due around the same time.
All of this collective uncertainty awaits and with the U.S share-market at all time highs.
Economic stimulus set to fade
Last week ended on a disappointing note with U.S negotiations over a second economic support package falling flat with Democrats and Republicans seemingly over US$1tln apart in their preferred packages for extending support to the economy and the millions of workers and businesses impacted by COVID-19.
Whilst the President over the weekend announced his intention to move unilaterally via executive action, it is highly uncertain whether he will be allowed to do this.
The President’s plans would see the additional US$600/week in unemployment benefits reduced to US$400/week until the end of the year, but with US$100/week of that paid by state governments, many of whom are reeling from revenues lost to the virus.
A swift resolution to the situation is of super importance since recipients of benefits received their last US$600 cheque over a fortnight ago.
Even more than this, private sector readings on credit availability such as that received from the Mortgage Bankers Association and the U.S Federal Reserve Senior Loan Officer Survey in the United States point to significant tightening in lending standards and credit provision to the private sector, demonstrating that but for government support, the US economy would be in an even deeper recession than that currently being felt.
Agreement on the second economic stimulus is a pre-requisite for conditions to be merely maintained, let alone improve.
High-frequency economic data out in both the United States and here in Australia points to softening in demand through the end of July and August as the benefits from government stimulus wane and the parts of each economy are forced into further lockdown.
In Australia, the Victorian lockdown is having an effect with the state contributing almost 25% of national demand, but also too, the stimulatory effect from the second $750 payment and from the FY 2021 early superannuation release peaked in early July and has since tailed off significantly.
Australian Corporate results upon us
As we have flagged in recent weeks, it all kicks off this week with major ASX names such as Commonwealth Bank (CBA), Transurban (TCL), Woodside (WPL) and Telstra (TLS) all due to report.
We think it will be very difficult for many companies to give forward earnings guidance given the enormous uncertainty detailed above, but we do think there is a very disparate set of expectations around stocks with many priced for perfection whilst others languish at multi-year lows.
In particular we have hopes that unloved stocks such as Challenger (CGF) and Nufarm (NUF) give investors reason to feel more favourably about their businesses in the current environment, whilst we also believe stocks impacted significantly by quarantine measures such as Webjet (WEB) and Invocare (IVC) have the potential to be interesting to investors willing to consider a glass half-full outlook in 2021 upon virus containment here in Australia.
|Monday||Results – Aurizon (AZJ), GPT (GPT), US Job Openings (JUNE)|
|Tuesday||AU ANZ Weekly Confidence, AU NAB Business Confidence (JULY), Results – James Hardie (JHX), Challenger (CGF), US NFIB Small Business Confidence (JULY)|
|Wednesday||AU Westpac Consumer Confidence (JULY), AU Wage Price Index (Q2), Results – Commonwealth Bank (CBA), Transurban (TCL), Downer (DOW), SEEK (SEK), Magellan (MFG), Computershare (CPU), US CPI (JULY)|
|Thursday||AU Employment Report (JULY), Results – AGL Energy (AGL), Telstra (TLS), Treasury Wines (TWE), QBE (QBE), US Weekly Jobless Claims, US Weekly Consumer Confidence,|
|Friday||US Retail Sales (JULY), US Michigan Consumer Sentiment (AUG)|
Australian results season will be the focus for investors her this week, albeit July consumer and business confidence numbers due on both Tuesday and Wednesday will be closely watched also.
Next week we get results from CSL (CSL), Invocare (IVC), Altium (ALU), BHP (BHP), Coles (COL), Sonic (SHL) amongst others, as well as trading statements from the other 3 major banks (ex CBA).
Whilst US results season is winding down, the focus on politics is heating up and the stalled discussions on additional fiscal stimulus for the US economy will likely take much of the headlines at a global level.
Friday 5pm values
|S&P / ASX 200||6004||+77||+1.3%|
|Property Trust Index||1225||+8||+0.7%|
Friday closing values
|U.S. S&P 500||3351||+80||+2.4%|
|Mon 10 August||Div Pay-Date – Metrics LIC’s (MXT/MOT)|
|Tue 11 August||n/a|
|Wed 12 August||n/a|
|Thu 13 August||n/a|
|Fri 14 August||Div Ex-Date – Transurban (TCL)|
Tuesday 11 August 2020, 11am
For more information on the above please contact Bentleys Wealth Advisors directly or on +61 2 9220 0700.
This information is general in nature and is provided by Bentleys Wealth Advisors. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decision based on this information.