Week of October 5th – October 9th
MARKETS
Policy
Negotiations for an additional round of financial aid for households and businesses are fluctuating
In the previous week, markets heavily fluctuated as the possibility of another round of financial aid for businesses and households varied from being hopeful to being doubtful. After negotiations about this additional round of aid were unsuccessful in Washington, stock markets sold off. The markets then regained strength as there are now talks of smaller and more direct financial aid packages, rather than one large combined package. These smaller aid packages have drawn in greater agreement between policymakers and it appears that another round of aid may be close. However, though the possibility of these smaller aid packages as well as an overall agreement that another round of financial aid is needed by households and businesses, disputes and negotiations between policymakers are still causing a delay. Democrats in the House are fighting for a $2.2 trillion dollar aid package, while Republicans have proposed only $1.8 trillion dollars in aid. These disputes will further delay the financial aid so long as they are not resolved. But the eventual passing of this additional round of fiscal stimulus is necessary for an economic rebound and will determine the future of the economy’s recovery. This additional round of aid is also predicted to cause a record jump in GDP in the third quarter. The second quarter featured a -32% drop in GDP, but fiscal aid to households and businesses should allow for a jump in the third quarter. Spending levels and household income will also be dependent on this additional fiscal stimulus.
Politics
Trump’s health and election volatility
This past week has largely seen positive gains across all the major stock indexes. In terms of market movers, election volatility and news on President Trump’s health have been playing a major role. Markets fell when the president had tested positive for COVID-19, but have largely recovered this past week after he was released from Walter Reed Hospital. Although the president’s health has been a major market mover, the upcoming election has created an increasingly volatile market due to large uncertainty over who will win the presidency and Congress. This would help explain some large swings we have seen in the markets this past week.
Economy
US income and unemployment stimulus shows volatility
In the US, the appearance of an expiration date for stimulus packages seems to be approaching at the end of July. As a result, consumer income and spending were expected to significantly reduce. However, spending ended up decelerating modestly even though households faced a large reduction in savings. Even though households have adjusted, there is only a limit on how far this can go. The underlying issue with the change in policy is the amount of money that will be available to spend in the economy. Going forward, the labor market will lean on several different factors to remain intact. The fiscal stimulus expiration will have a negative impact, but has the possibility of being renewed. If this course of action is taken, the market will obviously improve as the money in the market will remain. This would allow for increases in employment and would lead to a resurgence in the aggregate demand for the economy.
COVID-19
Coronavirus is still a threat but markets brush off fears
The Coronavirus pandemic is still a major market shifter now. Although no market indexes in the United States shifted greatly due to the virus itself, news revolving federal stimulus aid and President Trump’s Covid-19 diagnosis did shift markets greatly. While there are fears of a Coronavirus resurgence in the country before a vaccine is approved, markets ignored them and rose to their best weekly gain in months. Stocks fell when President Trump announced there would be no talks of stimulus checks until the election, but surged as the week went on. Large challenges, primarily related to the virus itself still loom ahead, but markets have proven to be resilient as momentum builds up towards the election and a potential vaccine by the end of 2020.
Microsoft and GameStop
GameStop gets a second chance
Earlier this week, Microsoft partnered with Gamestop on a multi-year deal, allowing Gamestop to use the tech giant’s cloud and hardware services. These Microsoft services will be mostly used to help run business operations including sales and inventory. This is a massive deal as GameStop has been fading away in recent years, as the video game sales industry has changed dramatically over the past decade. This is because physical media made up 80% of the video game market in 2009, by 2018 however, physical media only made up 17%. This exposed Gamestop’s possible brick and mortar challenges. The moment Microsoft and Gamestop released to the public, Gamestop’s stock shot up a whopping 44%! Gamestop is now advertising that you can buy a two-year subscription to the Xbox One (one of Microsoft’s products) without any upfront costs. Analysts are expecting Gamestop’s stock to shoot upwards when the new Playstation 5 and Xbox Series X consoles go on sale. 5,000 of Gamestop’s stores will be having a launch day for the new Xbox Series X that will be funded and sponsored by Microsoft. In addition, Gamestop’s stock is expected to go up as they are now generating revenue
from the in-app purchases, not only the tangible goods in their stores. Gamestop has not yet come out with any of the financial details of the deal, however, they plan to utilize Microsoft 365’s services and it’s messaging app for all of the employees, as well as supplying all of their employees with new Microsoft products (laptops, desktops). In the consumers’ eyes, this partnership won’t make much of an impact on them, as all they will really be able to differentiate is the new technology that the employees will be using to help finalize their checkout at the register.
Works cited
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