Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
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Head of Fixed Income Strategy
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What did the first US presidential debate tell us about US equities?
Peter Garnry
Chief Investment Strategist
Summary: In our Q4 Outlook we are focusing on the upcoming US election and part of our analysis is to provide our best guesses of US election basket on equities given either a Biden or Trump victory, or eve worse a contested election. The question is whether the first US presidential debate as made us wiser in terms of how the equity market views the election. In general the market is marginally negative on Biden, but the subsequent price action following the debate showed that what matters the most is fiscal stimulus which the US economy desperately needs.
This Tuesday we had the first US presidential debate which was chaotic event as described by John Hardy in his FX Update. US equities were choppy during the debate and decided in the end that the debate had probably increased the odds of a Biden victory causing US equity futures to sell off in the early hours of September 30. However, turned around during the session and rallied hard into the close on the first trading day after the debate on the prospects of fiscal stimulus coming as Nancy Pelosi, Speaker of the House, and US Treasury Secretary Mnuchin were converging on views over stimulus.
Only three industry groups were down on the 30 September with most groups gaining more than 0.5%. Due to the stimulus talks impacting price action in US equities it is difficult to isolate the market’s reaction function of the first US presidential debate across the different industry groups. Crude oil was down significantly ahead of the debate and thus negatively impacted energy stocks the following day. A general observation from those days of price action is that the market cares more about stimulus than the US presidential debates, or dare one say, maybe equities do not care much about who is US president.
| S&P 500 Industry Group | Return 1D | Return 5YR |
| Health Care Equipment & Services | 2.24 | 100.4 |
| Automobiles & Components | 1.48 | -4.5 |
| Food & Staples Retailing | 1.44 | 62.5 |
| Banks | 1.39 | 24.7 |
| Diversified Financials | 1.36 | 64.1 |
| Technology Hardware & Equipment | 1.23 | 256.0 |
| Pharmaceuticals, Biotechnology, Life Sciences | 1.2 | 52.1 |
| Household & Personal Products | 1.18 | 99.7 |
| Food, Beverage & Tobacco | 1.14 | 36.0 |
| Utilities | 0.99 | 65.2 |
| Materials | 0.97 | 69.3 |
| Software & Services | 0.89 | 218.0 |
| Insurance | 0.75 | 40.6 |
| Retailing | 0.73 | 202.0 |
| Real Estate | 0.58 | 46.5 |
| Consumer Durables & Apparel | 0.57 | 40.0 |
| Telecommunication Services | 0.55 | 41.4 |
| Semiconductors | 0.52 | 258.5 |
| Consumer Services | 0.33 | 63.2 |
| Commercial Professional Services | 0.23 | 94.7 |
| Media & Entertainment | 0.03 | 74.7 |
| Capital Goods | -0.17 | 54.7 |
| Energy | -0.23 | -44.1 |
| Transportation | -0.64 | 86.5 |
Source: Bloomberg and Saxo Group
Return 1D is the return on the first trading day following the first US presidential debate
As the first day of trading after the debate did not provide much colour on the individual industry groups we are not updating our US election scenarios on equities depending on the outcome. These estimates are also presented in our Q4 Outlook and are based on campaign policy statements and our best guesses on how the market could react after the US election. With the US president tested positive for Covid-19 it is not even given that the next scheduled US presidential debate on 15 October will go ahead. However, if changes in polls or any future debates changes our views, we will update our views.
The chart below is a 5-year chart of S&P 500 futures which is an EU compliance requirement.
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