• A number of economic bright spots remain, but we think the pace of the recovery is slowing. The economy remains reliant on fiscal stimulus until a medical breakthrough could help spark a self-sustaining expansion.

• We think equity markets could be vulnerable to a number of near-term disappointments.

• We think stocks will eventually benefit from a stronger global economic recovery, more political clarity and a coronavirus vaccine, but until that happens, equities are likely to remain stuck in their current trading range.

Stocks snapped a three-week winning streak last week, with the S&P 500 Index dropping 0.5%. The U.S. elections continued to dominate the headlines, with polls showing an increasing likelihood of a Biden victory and Democratic sweep of Congress. The on-again, off-again fiscal stimulus negotiations were also in the news with expectations growing for a postelection package. Undoubtedly, politics will continue to dominate financial headlines for at least the next couple of weeks.​

Ten Observations And Themes
1. The labor market continues to recover. The most recent weekly jobless claims data beat expectations and the reading was one of the lowest of the current recovery.

2. The housing recovery remains an important tailwind for the economy. Low mortgage rates and strong household balance sheets should keep the housing sector strong. Additionally, potential new homebuyers tend to have relatively high incomes, which is the same demographic that has better weathered the economic recession.

3. The resilience of the U.S. consumer sector could be tested. Individuals seem highly willing to spend for now, but that could change if the labor market softens. A new fiscal stimulus package would ease this risk.

4. The U.S. economic recovery is slowing. The effects of fiscal stimulus are running out, and we think the economy needs an additional jolt. Ultimately, a self-sustaining expansion will require a coronavirus medical breakthrough. Until that happens, the economy will be dependent on more support.

5. The Chinese economic recovery is continuing, which should continue to help commodity prices and put downward pressure on the U.S. dollar.

6. Third quarter corporate earnings are ahead of expectations. At present, 83% of companies beat estimates by an average of 18%. Earnings are on track to be down a better-than-expected—17%.

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