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Gross domestic product (GDP) is a monetary measure of the market value of goods and services. The US 3rd quarter GDP came roaring back at record 33.1%–beating the analysts’ 32% estimate.
The 2020 second-quarter GDP was the worst-ever on record. But after reopening the economy, the 3rd quarter GDP results are the best ever.
The comeback was fueled by massive stimulus injections and strong business and consumer activity.
The US economy bounced back and bounced back hard.
The Q3 GDP reversal puts the economy back to where it was near the end of 2019 before the pandemic lockdowns hit.
Can US Economic Growth Continue?
While many economists still paint a dark a picture for the economic future–the Q3 GDP beat shouldn’t be snubbed. It is a sign that consumers and businesses are more than ready to get back in action.
Despite the pandemic, the lockdowns, and the controversial “new normal,” the US economy’s resilience continues to shine.
Still, many headwinds are facing the global economy.
The International Monetary Fund (IMF) has downgraded its forecasts for 2020. The organization warns of a slow recovery that will hinder growth and fuel poverty.
The IMF predicts the world economy will contract by 4.4% in 2020 and estimates a 5.2% increase in 2021.
US Q4 GDP Forecast
Q4 GDP estimates are not as cheerful. Goldman Sachs cut its 6% growth estimate down to 3%.
The lowered expectations come from a lack of stimulus and increasing COVID infections. However, the bank has moderately increased the GDP estimates for 2021.
It is expected early next year that a second round of stimulus will pass, and a vaccine will become available. These catalysts will help fuel an economic recovery that could beat expectations.
Stimulus and Lockdowns
The economy is still feeling the effects of the March lockdowns. Unemployment is recovering, but many are still without a job.
If the US were to lock down a second time, it would cause a devastating blow to the economy.
More stimulus will help, but if businesses remain closed, the economic damage could cause a depression worse than the 1930s.
Optimistically speaking, a defeat of the virus, along with eradication of lockdowns, could stoke an economic upsurge like never before.
October 2020 US Market Performance
The market performed better compared to September but continued to see more downside. Equities corrected just over 5% in the final trading week of October.
The S&P 500 performance is nearly flat for the year while gold and the NASDAQ have returned over 20%.
October 2020 Market News Recap
Q3 Tech Earnings beat expectations, yet share prices remained punished. Facebook reported revenue of $21.47 billion and a 29% increase in net income. Alphabet reported revenue of $46.17 billion and a net income increase of 59%. Amazon reported revenue of $96.1 billion while tripling its net income. Apple reported its fourth-quarter earnings with $64.7 billion in revenue, but iPhone sales came down over 20%.
PayPal enters crypto. PayPal announced that customers can now buy and sell bitcoin along with other cryptocurrencies. The news has helped trigger a bullish run in Bitcoin. BTC prices recently reached $14k on October 31, 2020.
Apple creates its own search engine. The iPhone maker is developing a web search capability as an alternative to Google. The in-house web search function will provide Apple a substitute if the partnership with Google gets broken up by the Department of Justice.
Dunkin’ Brands is going private in a $11.3B deal with Inspire Brands. The merger will combine ownership of Arby’s and Buffalo Wild Wings with Dunkin’ and Baskin-Robbins. The buyout is an all-cash deal that values Dunkin’ Brands’ share price at $106.50 per share.
Lockdowns arise as COVID surges. The UK, Italy, Germany, France, Spain, Greece, Portugal, and Austria announced a partial lockdown and/or stricter COVID restrictions. PM Boris Johnson declared England will go into lockdown starting November 5th. The England lockdown is expected to last until at least early December.
Stimulus talks fell apart. As expected per our last newsletter, a second round of stimulus is not coming before the election. When it will happen and if it includes another $1,200 check to yolo in your Robinhood account is anyone’s guess.
Exxon maintains its high dividend. The oil giant is keeping the dividend (for now) despite the price crash in crude oil. The stock has a yield of over 10%, making the company the third-highest dividend stock in the S&P 500.
Netflix raises prices. The popular streaming company announced that its upping subscription costs. The standard plan is now $14 a month, and the premium plan is $18 a month. The costs are still substantially lower than getting cable. However, many customers used social media to announce their discontent about the price increase.
Walmart pulls guns and ammo, then reverses. The superstore briefly removed guns and ammo from store shelves citing “civil unrest.” The removal didn’t last long. The company soon announced guns would be returning to shelves.
Altria cuts JUUL valuation. The tobacco giant revised the valuation of its investment in JUUL to less than $5 billion. JUUL slashed its own valuation from $13 billion down to $10 billion. The company was valued at $38 billion back in December of 2018. The stark decrease in value comes from stricter regulations and backlash from teenage vaping.
Market Outlook for November 2020
The winner of the 2020 US presidential election will be determined (hopefully) early next week. The market is expected to remain highly volatile. If complications arise or civil unrest erupts, there could be a potential market crash.
The outcome of the election could also be a nothing burger. The actions of the Federal Reserve are likely to be the same regardless of who is president.
Bullish headwinds for the market are simple–further stimulus and the eradication of the virus.
Additional stimulus delays, lockdowns, and gloomy economic data could be enough to pop the bubble. Will this happen in November? Maybe, but I highly doubt it.
The majority of investors are expecting a crash, and the herd is often wrong.
If anything, November could end up being a sideways month. Investors should look for stimulus confirmation and better control of the virus. The cycle of vaccine and stimulus pumps are still in play.
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