MANHATTAN (CN) — Posting its worst week in more than six months, Wall Street slid further Friday on persisting fears of a rocky presidential election and a worsening pandemic.
The Dow Jones Industrial Average, which had perked up a bit on Thursday after a dismal Monday and Wednesday, lost 153 points by the closing bell, a 0.5% drop. The Nasdaq and S&P 500 had much steeper drops for the day, of 2.4% and 1.2%, respectively.
In total, the Dow lost 1,830 points this week, while the S&P 500 shed 195 points and Nasdaq dropped 637 points.
“The final week of October is really spooking investors,” wrote James Vogt, a senior portfolio manager at Tower Bridge Advisors in an investor’s note, while reflecting on the fairly stable trading parameters that the S&P 500 and Nasdaq have enjoyed the last few months.
“Neither of them are ready to break out in either direction until we get resolution on the major themes we are well aware of, namely, Covid, the election, and future stimulus,” Vogt added.
The biggest question mark for investors is the election. Some analysts say another Blue Wave next week could help GDP. “Assuming Democrats sweep, we find Bidenomic could lift real GDP growth by 1.2ppts to 4.9% in 2021, vs. 3.7% in a status quo policy baseline,” according to an analysis by Gregory Daco and Nancy Vanden Houten at Oxford Economics.
A Biden presidency with a Democrat-controlled Senate would see the U.S. economy recoup Covid-related losses by mid-2021, two quarters earlier than in their baseline estimates.
“While Biden’s fiscal agenda would likely feature tax increases in 2022, we believe the fiscal multipliers would be very low, around 20 cents-25 cents on the dollar,” they wrote, adding that Biden also likely would increase immigration to pre-Trump levels and take a multilateral approach to trade.
Other analysts say that, while stocks are likely to react more positively in the short term to a second Trump term than a Biden presidency, certain sectors could benefit over a longer period.
“Although the market is generally expecting a negative reaction to Biden’s presidency (with Democrats favoring a higher tax rate), the tensions over immigration, global trade, and China might ease under his presidency,” wrote analyst Desmond Leong at Axi Traders.
Leong added that data from as far back as 1933 show that the stock market tends to underperform the following year after an election. “When a new party takes power, the stock market goes up by about 5% the following year,” he wrote. “But if the current president gets reelected, the stock market on average has increased slightly more at 6.5%.”
Economic data this week did little to swing markets back into positive territory. The biggest economic drop was the staggering 33% annualized increase in GDP for the third quarter, a few points higher than most experts had predicted. During the second quarter, GDP fell by 31% at an annualized rate.
President Trump lauded the numbers. “Biggest and Best in the History of our Country, and not even close,” he tweeted on Thursday. “Next year will be FANTASTIC!!!”
Experts were quick to note, however, that the big numbers belie the truth about the continued pain in the U.S. economy.
Real GDP is still 3.5% lower than its previous peak at the end of last year and is about 5% lower than what it would have been had growth remained unaffected by the pandemic.
Unemployment numbers also hit the lowest mark in months on Thursday, though overall unemployment remains high. More than 751,000 new unemployment claims were filed the week ending Oct. 24, according to data from the Labor Department. Meanwhile the number of claims under the Pandemic Unemployment Assistance program increased from 344,000 the week of Oct. 17 to nearly 360,000 last week.
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