Whereas Monday’s manufacturing release of the ISM report for the month of October exceeded estimates and continued to rise to new highs for the pandemic, this morning’s service sector report was weaker.  The release was anticipated to show a slight decline, falling to 57.5 from 57.8 last month. Instead, that decline was even larger with the headline number dropping to 56.6. That is the lowest level of the index since May, and while it is still indicative of expansionary activity, it was at the slowest rate of the recovery. That has led the composite of the manufacturing and non-manufacturing readings to similarly be a bit on the weak side, falling from 57.5 to 56.9. Again this is consistent with overall growth versus last month, but at a slower rate.

Given the headline number’s decline, breadth in this month’s report was a bit weak.  Just six of the ten sub-indices were higher this month.  Despite this, every index remains in expansion with those for Inventories and Import Orders actually exiting contraction.

Broadly speaking, the survey showed that conditions have continued to improve but at a slowed pace in October.  Given this, the key phrase of the commentary section seemed to be “cautiously optimistic”.  Multiple comments made mention that business has gotten better with solid demand and workers coming back, but uncertainty has persisted.

New Orders have continued to grow, but at a slowed pace as the corresponding index fell 2.7 points to 58.8 in October.  Unlike the same index for the manufacturing survey which is at multiyear highs, the services index for new orders is in the middle of its historical range.  On the other hand, given orders have continued to rise, backlogs have also continued to rise.  The index for Backlog Orders rose 4.3 points to 54.4 which is the highest level since the summer.

As demand sits at solid levels, Inventory Sentiment remains historically low.  That index fell to 51.1 in October which is the third-lowest level since 1997 behind July and March. In other words, very few businesses are reporting that inventories are too high.   Despite this, the index for Inventories actually indicated that inventory levels grew in October as the index rose to 53.1. That compares to a reading of 48.8 last month which is consistent with drawdowns in inventory levels.

Employment experienced its first expansionary reading of the pandemic in September, but in October hiring appeared to slow as the index fell to 50.1.  Although that is still indicative of net hirings, it shows that businesses were slower to bring in/back workers.  Click here to view Bespoke’s premium membership options for our best research available.

With Election Day upon us, below we take a look at the biggest winners and losers across financial markets during the Trump Presidency from Election Day 2016 through today.  First off, below is a chart of the market cap of the Russell 3,000 since Election Day 2000 which George W. Bush eventually won.  The Russell 3,000 makes up more than 98% of the total US equity market cap, so it’s a good gauge to use for measuring the overall change in market cap levels.  The current market cap of the Russell 1000 is just north of $35 trillion, which is up $11.5 trillion since Election Day 2016.  President Obama oversaw US market cap growth of $12.3 trillion over his two terms, while President Bush actually saw market cap decline by $4.1 trillion after his two terms.

Below is a look at the total return of various asset classes since Election Day 2016 using key ETFs listed on US exchanges.  The S&P 500 (SPY) is up 70.6% since Trump was elected, while the Nasdaq 100 (QQQ) more than doubled that at +144.3%.  Of the broad index ETFs in the matrix, the Smallcap Value ETF (IJS) is up the least since Election Day 2016 at just +17.2%.

Looking at US sector ETFs, the Energy sector (XLE) is a huge outlier with a decline of 48.3% since Trump was elected.  Technology (XLK) and Consumer Discretionary (XLY) are up the most with gains of 154% and 97%, respectively.

Along with Energy stocks, the oil (USO) and natural gas (UNG) ETFs have been more than cut in half since 11/8/16, while gold (GLD) is up 47% and silver is up 29.5%.

Not every country has seen stock market gains since Trump was elected.  As shown below, Mexico (EWW) is down 28.5%, Brazil (EWZ) is down 19.4%, Spain (EWP) is down 6.8%, and the UK (EWU) is just slightly in the red.

The US (SPY) is up more than any other country with a gain of 70.6%, while China (ASHR) is up the second most at +51%.  Whatever happened with the trade war certainly didn’t hurt the US and China versus the rest of the world on a relative basis.

Within the Russell 1,000 in its current form, there are nine stocks that are up 1,000% or more since Election Day 2016, with Enphase Energy (ENPH) at the top with a gain of 8,590%.  Trade Desk (TTD) is up the second most at +2,448%, followed by Novocure (NVCR), SolarEdge Tech (SEDG), and Quidel (QDEL).  Square (SQ) ranks sixth with a gain of 1,203%.  Other notables on the list of big winners since Trump was elected include Etsy (ETSY), Teladoc (TDOC), Tesla (TSLA), NVIDIA (NVDA), Atlassian (TEAM), Boston Beer (SAM), and Lululemon (LULU).

In terms of market cap gains for individual stocks, the numbers below are quite eye-popping.  Apple (AAPL) has gained the most in market cap since Trump was elected with an increase of $1.257 trillion!  Amazingly, both Amazon (AMZN) and Microsoft (MSFT) have added more than $1 trillion in market cap as well.  Prior to the last few years, no company was even close to having a $1 trillion market cap, but at this point, AAPL, AMZN, and MSFT have gained that much in the last four years.  Click here to view Bespoke’s premium membership options for our best research available.

In the table below, we show the standings of 35 global stock markets as a percentage of total world stock market cap. The US is still by far the largest stock market, and it is not even close, accounting for over 40% of total world market cap.  China is the only other country to make up a double-digit share of world market cap. For the US, its share of global market cap has grown 1.55 percentage points since the start of the year. Only China has gained a larger share in 2020, rising 2.78 percentage points.

With the election underway, we also wanted to take a look at how this has changed during President Trump’s tenure.  As shown, just like this year, since the last election, world market cap has consolidated into the US and China.  Back in November of 2016, the US and China accounted for 36.53% and 10.21%, respectively, compared to 41.07% and 11.22% today.  For the US, that 4.5 percentage point gain in share of world market cap is by far the largest, and China’s gain was actually not the runner up. Saudi Arabia holds that spot with a share that has risen over 2 percentage points.  That outsized gain is thanks to the IPO of Saudi Aramco, one of the world’s largest companies, just under one year ago.  On the other hand, the UK and Japan have lost disproportionately large shares in the same time frame.  Click here to view Bespoke’s premium membership options for our best research available.

As we noted last week, while earnings beat rates are historically high, economic data is still consistently coming in better than forecasts, but the beats are not as dramatic as they were in the spring/early summer.  In the charts below, we show the Citi Economic Surprise Indices for the US and some other regions of the world. Higher readings point to data being better than forecasts and vice versa. At current levels, the US index is down significantly from its July highs and continues to head lower, but it is still well above any readings seen prior to the pandemic.  Meanwhile, Emerging Markets data never spiked in the same way the US did, but it has been on the rise recently reaching its highest level in over a decade in the past few days. Of all daily readings, there have only been five other days that the index was higher than Friday’s reading of 63.1. For G10 countries and the global index, trends more closely resemble the US with one caveat.  Late last week the indices saw another big turn higher.

The reason for that jump was the Eurozone.  As shown in the charts below, over the past few months the index was headed lower approaching zero, meaning the region’s economic data was not beating forecasts in the same way that the rest of the world has. But that is not so much the case now thanks to a big beat for GDP last Friday which likely holds a massive weight on the index.  That resulted in the index to jump by the most ever in a single day. The index rose 89.9 points compared to the historical absolute median daily change of just 3.8 points. That single day move was even larger than any of the readings from the rebound in the more immediate aftermath of the worst days of the pandemic.

Despite deteriorating COVID conditions, new lockdowns, and plenty of other worrisome factors, European equities have seemed to have received a bit of a boost coincident with the turnaround in the economic surprise index. Last week the Stoxx 600 fell below support and out of the past several months’ range, but after reaching extremely oversold levels, the index began to turn higher on Friday.    Click here to view Bespoke’s premium membership options for our best research available.

With the ISM Manufacturing report coming in at the highest level in two years today we wondered whether a strong manufacturing sector ahead of an election has any impact on the results.  One would think that surging activity in the Manufacturing sector would be good for a President’s re-election chances.  To shed some light on this, the table below shows the election results of each election since 1952 based on which party was in the White House and which party won the election.  For each Presidential Election, we also show the level of the October ISM Manufacturing report, its three-month change as well as the distance of the most reading relative to its 52-week range.

Looking at the overall results, we were surprised to find that there’s not that much of a connection between levels of the ISM Manufacturing report before an election and the actual results of the election.  Overall, when the party of the President in the Oval in the Oval office stays the same, the median level of the ISM Manufacturing report ahead of the election is 54.1.  When the party flips, the median level is modestly lower at 52.0.  October’s ISM Manufacturing report was also the third-highest level heading into a Presidential election on record.  The only two that were higher were the election of 1972 (67.0) when Nixon defeated McGovern and 1964 (60.7) when Johnson defeated Goldwater, and in both of those elections, the party of the President stayed the same.

Additionally, when the party in control stays the same, the ISM Manufacturing report has been slightly closer to a 52-week high (-4.2) than it has when the parties flip (-5.4).  However, the only two times that the ISM Manufacturing report was at a 52-week high leading up to the election were in 1972 and 1980.  In 1972,  Nixon was re-elected, but in 1980 President Carter lost his re-election bid despite the ISM Manufacturing report being at a 52-week high, and the three-month change was the strongest of any other election since 1952.

While those two metrics would suggest a slight case for a strong ISM Manufacturing report helping the party in power, the median three-month change has actually been worse when the party of the President stays the same (-0.7) versus when there is a change (-0.5). Click here to view Bespoke’s premium membership options for instant access to our research and interactive tools.

Both Markit and ISM’s readings on the manufacturing sector exceeded expectations this morning indicating that the sector of the economy continued to grow at an accelerated pace in October.  In regards to the ISM report, the headline number rose to 59.3 after falling to 55.4 last month.  The index is now at its highest level since September of 2018.

Commentary from respondents is backing up the strong showing of the headline number. The bulk of comments made mention that demand has continued to improve with some companies saying that conditions are almost back to or even better than pre-COVID levels.

Looking across the various categories of the report, breadth was very strong with all but one index rising month over month. That index that moved lower was for Customer Inventories which has fallen deeper into contraction.  On the other hand, the indices for Business Inventories and Employment exited contractionary territory with significant increases this month; both MoM increases around the top 10% of readings. Elsewhere in the report, demand is very strong with New Orders, Backlog Orders, and Export Orders all heading higher. Meanwhile, as businesses ramp up production to meet that demand, Imports, Production, and Employment also improved. That has also led prices to rise while supply chains still are showing some signs of stress as lead times remain elevated as seen through the Supplier Deliveries index.

As noted in the comments section, many businesses have reported that demand has been very healthy. The index for New Orders is consistent with this. After pulling back in September, the index rose past the August high of 67.6 in October. At 67.9, the New Orders index is at its highest level since late 2003/early 2004 and the 7.7 point month over month increase was in the top 5% of all monthly moves. As new orders expand at a rapid pace, backlogs have been on the rise as well. The index of Backlog Orders rose to 55.7 from 55.2; the highest level in two years.

That strong demand has been taking its toll on inventories over the past few months. After three straight months of contraction in inventories, October saw inventories expand for the first time as the index rose to 51.9 from 47.1 in September.  That is the highest level since April of last year. The improvement in business inventories indicates some normalization for supply chains that are seeking to match historically strong demand.

Meanwhile, the index for Customer Inventories, which tracks whether inventories are too high, too low, or just right, fell to 36.7 in October versus 37.9 in September.  At its lowest level in a little more than a decade, around a third of respondents are reporting that customer inventories are still too low. In other words, inventories are finally beginning to build but still have a ways to go to meet demand.

Taking the spread of New Orders and Customer Inventories, there have only been two other months in the past two decades (December of 2003 and December of 2009) in which the spread was higher. That means that new orders continue to rise much faster than inventory levels which will be a tailwind for production in the future.

One of the most promising areas of the October report was that for the first time since July of 2019, the index for Employment rose above 50, meaning there was finally net hiring. That rise in employment is surely on account of rising production to meet the surging demand. Click here to view Bespoke’s premium membership options for our best research available.

After three months of declines, gun background checks in the United States rose again in October, rising from 2.892 million up to 3.305 million.  That’s the highest monthly reading since July as the wave of civil unrest started to abate.  While off the highs seen earlier this year, October’s number of background checks was the fifth-highest monthly total on record and higher than all but one monthly reading prior to 2000.  Just to illustrate how much of a surge we have seen in background checks for firearms this year, the chart below shows the total number of background checks in the first ten months of each year since 2000.  At the current total of 32.1 million, total background checks are dwarfing every other year on record. This year’s total number of background checks is already higher than any full-year total since 2000, and even September’s YTD total of 28.8 million would have surpassed every other prior year on record.

Not only is this year’s increase in background checks the highest on record, but the y/y increase in this year’s first ten months relative to last year is also the largest increase on record.  Prior to 2020, the largest y/y change over the first ten months of the year was 2016’s increase of 26.3%.  This year, though, background checks are up by over 40%!  We’ve seen a number of statistics this year showing that uncertainty on the part of Americans towards the economy and country, in general, is at record highs, and the increase in the number of Americans purchasing firearms is just another real-life example.  Click here to view Bespoke’s premium membership options and unlock full access to our research and interactive tools.