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By Matthew
Klein | Friday, October 9 Shaking
It Off. The last week has been
full of sobering news about top government officials coming down with
Covid-19, from President
Trump to multiple senators and
members of the Joint Chiefs in quarantine. But investors haven't worried
much about Covid for months now, and this week was no different. The S&P
500 large-cap index finished the week
up 3.8%, with the Russell 2000
small-cap index up a whopping 6.4%. Those
were the best one-week performances since July and June, respectively. Stocks were
positive today as well, with the S&P up 0.9%, the Russell up 0.6%, and
the tech-heavy Nasdaq
Composite up 1.4%. The biggest winner was Xilinx, a chip
designer that's reportedly in talks to be acquired by Advanced
Micro Devices. Xilinx stock
jumped 14% on the news, with AMD down 4%, making it one of the
biggest losers of the day. Most of the
other losses were concentrated among oil and gas stocks such as Apache, Mohawk
Industries, Occidental
Petroleum, Marathon
Petroleum, HollyFrontier, The
Williams Companies, Devon
Energy, and Kinder
Morgan. Despite Friday being a
solid day for the S&P as a whole, the energy sector was down 1.6%. Investors
were otherwise optimistic across asset classes, with copper, Treasury yields,
and global stocks all rising. Silver gained more than 5% on Friday, which was
the biggest one-day increase since August. Oil still fell, consistent
with losses in energy stocks. So why did
stocks have such a strong week? One possibility is that President
Trump's health has been better than investors feared when the
Covid-19 news first broke last week. But
investors may also be adjusting to a new potential reality in Washington: the
end of dividend government. According to FiveThirtyEight’s polling estimate,
Joe Biden’s lead
has grown by two percentage points, with the latest polls implying a
double-digit lead. The implied odds that the Democrats take the Senate have
also increased, from 61% at the beginning of October to 68% today. This matters
because a unified government is more likely to borrow and spend to support
the post-Covid recovery. Goldman Sachs’ economics team notes that “a Democratic
sweep would…boost output substantially both because the increases in
government spending and transfer payments are much larger in dollar terms
than the tax increases." Either party
is faced with a grim reality in January, given the rough state of the
economy. Few people want to see a rerun of the austerity and slow growth
following the financial crisis, which would be bad for corporate profits and
therefore investors. That recent history increases the chances of big
spending by early next year. And one party-control could allow it to happen
quickly. Watch our TV
show on Fox Business Friday at 10:30 p.m. ET; Saturday at 1:30 a.m., 9:30
a.m. or 11:30 a.m.; or Sunday at 9:30 a.m. or 11:30 a.m. This week, see an
interview with James
Bullard, president of the Federal
Reserve Bank of St. Louis. |
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DJIA: +0.57% to 28,586.90 The Hot
Stock: Xilinx +14.1% Best Sector:
Technology +1.5% |
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