Last week, financial markets and economic data told very different stories.
Reviewing economic data is a bit like looking in a rearview mirror. Typically, it offers information about what is behind us. For example, last week we learned:
- The U.S. economy grew by 33.1 percent during the third quarter of 2020. Strong growth helped boost America’s Gross Domestic Product (GDP), which is the value of all goods and services produced in the nation. At the end of the quarter, GDP was about 3 percent lower than a year ago, reported The Economist.
- Personal income increased in September, and so did spendingon goods and services. Americans bought more clothes, cars, and car parts, and spent more on healthcare and recreation.
- New claims for unemployment insurance moved lower last week. Unemployment remains high overall, but a slowdown in new claims is positive.
Despite positive trends in economic data, major U.S. stock indices delivered their worst performance since March 2020. Financial markets are the windshield. They show us what investors anticipate may be ahead. Last week, it was clear investors were not optimistic. There were a number of reasons they may have been concerned:
- The number of coronavirus cases in the United States and around the globe is on the rise. In Europe, Germany, France, the United Kingdom, and other nations have closed segments of their economies and tightened limits on social distancing. “The more serious the virus spread becomes, the more economic restrictions get put in place. That, in turn, applies economic pressure and spooks investors,” reported CNBC.
- New U.S. stimulus was delayed. Democrats and Republicans were unable to agree on the terms for a new stimulus package before the election. Concern that stimulus measures might be delayed until next year helped push stock indices lower last week.
- Election uncertainty is high. “The election looms large as the biggest wild card risk for markets, and there is a real concern that no outcome could lead to a period of uncertainty and turbulence for markets and the economy,” reported CNBC.
It’s possible we may see more market volatility this week.
photo by: Car windshield with view of Brooklyn Bridge, New York, USA. © Marcorubino | Dreamstime.com