Yahoo Finance’s Alexis Christoforous and Michelle Girard, Managing Director & Chief U.S. Economist at NatWest Markets, discuss the latest market moves amid election uncertainty.
ALEXIS CHRISTOFOROUS: I want to turn to Wall Street now and market reaction as ballot counting stretches into the fourth day. The major stock indexes are mixed right now after rallying 2% or more each of the past four days. Here's where things stand right now. We've got the Dow off 67 points. The broader market is mixed, with the NASDAQ hanging on to a gain of about 11. We've got the S&P 500 hanging out right near the flat line.
In addition to the uncertain election outcome, investors are digesting the October unemployment report which showed the economy added 638,000 jobs last month, handily beating estimates for 580,000. The unemployment rate fell to 6.9% from 7.9%. In all, we have gained back about half of the 22 million jobs lost during the pandemic. And the coronavirus numbers continue to go up. According to Johns Hopkins, new cases of the virus jumped 20% to a record 121,000 in the US in just a single day. Lots for investors and for all of us to be considering.
Joining me now is Michelle Girard, Managing Director and Chief US economist at NatWest markets. Good to see you, Michelle. OK, let's start with this incredible market rally we've been seeing during an incredible week for the election. Is the market here banking on divided government?
MICHELLE GIRARD: I think that is exactly what is driving this rally in risk assets, if you will, or in equities. Coming into the election, as there was speculation that perhaps Democrats might secure all branches-- parts of Congress, as well as the White House. The thought that a blue sweep would enable unleashing additional massive fiscal stimulus I think had worried some in terms of the prospect of what that might mean, for example, for higher interest rates. And now what's happened is, well, we don't know who the president will be.
It looks very likely that we will have a divided government with the Republicans keeping majority in the Senate, which will then-- it's really tamped down on expectations of massive more fiscal stimulus, and that actually then has people say, OK, so we're back to that same old model. We're back to not much on the fiscal side. The Fed having to do more. Potentially a stronger case with the Fed having to buy.
It will increase their asset purchase program, and we know that has been very positive in terms of raising asset prices and supporting equities. So I think all in all, coming back around, Alexis, as you said, this idea that we're going to most likely have a divided Congress I think has the markets feeling that the worst case scenario, in some ways, it has been avoided.
ALEXIS CHRISTOFOROUS: You know, yesterday, we heard from Fed Chair Jerome Powell, and he again pointed to the coronavirus as being though one of the biggest threats to the economic recovery. Do you see it that way, and could the spike we're seeing in COVID cases be the thing that handicaps the stock market rally, at least in the short term.
MICHELLE GIRARD: Well, I will say I think that markets are going to continue to be forward-looking. We've seen that the resilience of the markets, even in the face of COVID, as the news of COVID worsens, that only will increase the odds that you'll get more fiscal and monetary support. And so that always seems to provide some comfort for the equity market, if you will, in the face of bad news on the virus.
Now, that's quite different when we're talking about the economic impact, and I am concerned about the numbers worsening. It's not so much the risk of a renewed lockdown like we've seen nationally in other economies, but even just the concern that people have about contracting the virus is likely to lead to more cautious behavior and Jerome Powell had talked about that as well.
So I do think that we're probably going to move into a period where the economic data do worsen a bit as we see more cautious behavior, and again, the equity market may be able to power through that, especially if we get hopeful news on a vaccine as we head into the new year. But the economic data may not look nearly as positive, as for example, today's employment report did.
ALEXIS CHRISTOFOROUS: Let's talk about that employment report. Anything stand out to you there? I mean, on its face it was better than expected, but I guess it still highlights how much trouble the labor market is in and how far we still need to climb to be a pre-pandemic levels.
MICHELLE GIRARD: Well, I will say it was good news. I mean, it beat our expectation, and almost doubled our expectation in terms of the private payroll gain and really impressed with the decline in the unemployment rate, which happened even as more people came into the workforce, and more people came in looking for work, which on a margin might have make it a higher hurdle to get that unemployment rate down. So I think that the news is good. As you pointed out, there is a long ways still to go.
And I think it is a reminder as we've talked a month after month of the scarring that the economy is suffering. When the lockdowns ended and it looked like we had a strong rebound, employment still is not-- I mean GDP is only 3.5% and off its pre-virus levels. Employment is about 7% off of its pre-virus levels, Q3 versus where we were at the end of a 2019. So there is still a long way to go, and of course, as long as you've got that weaker employment situation, I do think it continues to restrain the pace of recovery that we can actually look forward to.
We still have healing to do on the employment front, and of course, getting back to the fact, we may be entering into a period where we actually see an increase in layoffs as if the numbers worsen in the next couple of months.
ALEXIS CHRISTOFOROUS: Michelle, as the market starts to wrap its head around what a Biden presidency might mean for equities and for the economy, what are some sectors that you'd be looking at right now?
MICHELLE GIRARD: Well, I will say on a macro level, the fact and we've seen it-- fact that we are not going to see massive fiscal stimulus that might put upward pressure on interest rates as the government needs to sell more debt has helped to actually bring interest rates longer-term Treasury yields lower, and of course, that's going to continue the trend of lower mortgage rates.
So one of the real standouts, of course, in the economy right now, has been the housing sector. And so I think that that is-- again, this scenario of a more restrained fiscal path and an interest rates staying lower for longer is all very supportive of the housing sector. I think what we've continue to see is a general outperformance of the goods economy versus services, and that is a reflection of the virus, and I think that that trend is probably not going to reverse anytime soon.
I continue to think you'll see an outperformance in spending, for example, on autos as opposed to on apparel or restaurants and in the retail sector. So I think some of those same trends will extend, and again, that's probably irrespective of who's the president, but I think some of those sector plays are probably still going to continue until we get further past the virus situation.