After sharp bounce, market may take a ‘breather’ on lingering election uncertainty, virus outbreak

first_imgThere are a few economic reports in the week ahead, including consumer price index inflation data Thursday and the producer price index Friday. The earnings season is beginning to slow down, but there are still dozens of reports, including from McDonald’s on Monday and Walt Disney, Applied Materials and Cisco on Thursday.“I think next week is just setting up to be a breather. There’s still a lot to figure out here,” said Grohowski. “The equity market’s reaction has been I think understandable and probably better than many might have expected.”Grohowski said there may be uncertainty for awhile. “What I’m thinking about is the Senate races. Part of the market reaction has been relying on this divided government.” After the votes are all in or recounted, “a sweep is unlikely but possible.”“I think the longer this stays uncertain and messy, the more the post-election bounce comes into question,” he said.Different than 2000It would not be unusual for the stock market to sell off before rallying into year end, according to Sam Stovall, chief investment strategist at CFRA. Stovall does not expect the type of turbulence there was in 2000, when former Vice President Al Gore lost to George W. Bush in a tight race that ultimately went to the Supreme Court.“In 2000, they were not expecting hanging chads. But they do expect a contested election this time. I think in many ways the market anticipated this,” said Stovall.But the market, after its election week surge, could pull back. “Historically, the market goes down in the month of November, after a Democratic victory,” said Stovall. Since World War II, Democrats won the White House nine times, and the market fell an average of 0.5% in November in those years, compared to the average gain for all Novembers of 1.4%, he said.After those Democratic victories, stocks then rose 1.9% in December on average, more than the normal 1.5% gain for all Decembers.Strategists said they currently do not expect the kind of lockdowns that states ordered when the pandemic started to spread in March. But there could still be some impact that could be negative for stocks.Grohowski said he sees some signs of optimism for the market. Strong data, like third quarter GDP, October’s drop in unemployment to 6.9%, and the better-than-expected earnings are all positives for the market. Another is that investors are so skeptical.“What does still exist is a great deal of dry powder. There’s $4.3 trillion in money markets alone,” he said. “I can tell you, being in touch with investors of all shapes and sizes this week, there’s still a lot of skepticism. From a contrarian view, high cash and a lot of skepticism is a contrarian indicator.”Week ahead calendarMonday Earnings: McDonald’s, SoftBank, Beyond Meat, Simon Property Group, Ambac Financial, Tilray, ZoomInfo, Occidental Petroleum, Myriad Genetics, Taubman Centers, International Flavors and Fragrances, Norwegian Cruise, Canopy Growth, Aurora Cannabis, Party City 1:30 p.m. Cleveland Fed President Loretta Mester2:00 p.m. Senior loan officer survey Tuesday Earnings: Lyft, Advance Auto Parts, Adidas, D.R. Horton, Rockwell Automation, CyberArk Software, Hain Celestial, Rackspace, Ashland, Rocket Cos 6:00 a.m. NFIB small business survey10:00 a.m. JOLTS10:00 a.m. Boston Fed President Eric Rosengren WednesdayVeterans DayBond market closed, stocks market open regular trading hours Earnings: Air Products, DouYu, Lemonade, Reynolds Consumer, Vroom, Fossil Thursday Earnings: Walt Disney, Palantir Technologies, Applied Materials, Beazer Homes, Cisco Systems, Siemens, Burberry, Brookfield Asset Management, Unity Software8:30 a.m. Jobless claims8:30 a.m. CPI1:00 p.m. Chicago Fed President Charles Evans2:00 p.m. Federal budget2:00 p.m. New York Fed President John Williams Friday Earnings: Manchester United, Draftkings, Vipshop 7:00 a.m. New York Fed’s Williams8:30 a.m. St. Louis Fed President James Bullard8:30 a.m. PPI10:00 a.m. Consumer sentiment – Advertisement – The S&P 500 was up more than 7% in the past week, and the Nasdaq rose nearly 9%. Technology, communications services, health care and discretionary stocks led the rally, after it appeared Democrat Joe Biden could be the next president but with a split Congress.The election was still unresolved heading into the weekend, but even if Biden is declared winner, close votes and lawsuits are likely to result in recounts. The Senate appeared to be in Republican hands, but the margin of control is likely to be tight, and runoff elections are required for two Senate seats in Georgia in early January.“I think the uncertainty is going to catch up the market on a short-term basis,” said Leo Grohowski, BNY Mellon’s Wealth Management chief investment officer. “Perhaps next week could be a drifting lower kind of week.”- Advertisement – Spencer Platt | Getty Images News | Getty Images At the same time, there has been a surge in daily new coronavirus cases to more than 122,000. Economists are concerned that the economic recovery could suffer as some states could restrict activities and consumers may pull back heading into the important holiday season.The Fed, in its post-meeting statement Thursday, repeated that the course of the virus could help determine the path of the economy.- Advertisement – Ahead of the election, the market had been betting on a “blue wave,” where Biden would take the White House and Democrats would get control of the Senate, giving them total control of Congress. But when it appeared the Senate would stay in Republican hands, stocks surged on the idea of gridlock, which would keep Biden from implementing tax increases and lots of new regulations. After an initially exuberant election reaction, stocks may trade more cautiously in the week ahead, as investors watch election developments unfold and track the course of the coronavirus. – Advertisement –last_img read more

FRC to ‘expedite’ pension fund accounting-disclosure changes

first_imgThe Financial Reporting Council (FRC) has confirmed it will press ahead as a matter of urgency with finalising its proposed changes to its pension fund Statement of Recommended Practice.An FRC spokesperson told IPE: “We have received very positive responses with those FRS 102 preparers that will be affected by the amendment – namely financial institutions and users of their financial statements, highlighting the benefits it will bring.”He added: “We are in the process of finalising the amendment, with the aim of issuing it in its final form in the first quarter of 2016.”The decision ends a period of uncertainty for pension funds and their advisers as they attempt to finalise their first set of year-end scheme accounts for 2015 under the new UK GAAP regime. Aon Hewitt consultant actuary Martin Lowes told IPE: “It’s reassuring to know they are expecting to proceed quickly. Knowing early that the changes will proceed will avoid a lot of unnecessary work on the part of preparers.“It means, if you have two changes, you have to work out what you’re doing twice, and you end up having to restate for the prior year twice as well, in addition to getting your head around both changes.”The FRC issued an exposure draft (ED) of its now finalised SORP in August 2014.The ED proposed a number of changes to the 2007 version of the SORP.The FRC’s decision to consolidate UK GAAP into a single accounting standard, FRS 102, was the driving force behind the need to update the SORP.FRS 102 is a modified version of the International Financial Reporting Standard for Small and Medium-sized Entities.It represents a root-and-branch reform of financial reporting in the UK and the Republic of Ireland.Among the areas of accounting it addresses is accounting by pension funds. The SORP provides a layer of recommended practice on top of those requirements.Since the last update to the SORP in 2007, the UK pensions landscape has seen both the introduction of auto-enrolment and a growing number of pension schemes entering the Pension Protection Fund.The new SORP broadly addresses three areas of pension fund accounting.It scraps the exemption that allowed pension schemes to report an annuity’s value at nil, it introduces a new valuation hierarchy based on IFRS 13, Fair-value Measurement, and it sets out new investment-risk disclosure requirements.The FRC’s move will increase the pressure on scheme trustees to make sure they are able to comply with the new reporting requirements.Towers Watson consultant Andrew Mandley said: “There are still some schemes that are not completely ready for this. It is important trustees be clear who is actually putting these new investment disclosures together.“It would be easy to think someone else is doing it when in fact they are not. The qualitative disclosures link back to strategic decisions made by the scheme trustees, and the success of the exercise depends on relating the quantitative financial risk data to those decisions.”He stressed that it would be a mistake for trustees to think they could leave everything to their investment managers.Philip Briggs, audit director at RSM’s pensions group, painted a similar picture.“The new investment disclosure requirements remain an area where I am not seeing pension scheme accountants producing many examples,” he said.“Responsibility is being passed between pension scheme accountants and investment advisers, and this risks delays in providing draft disclosures for trustees to consider.”Mandley added: “It seems as though some investment managers and custodians are being more helpful than others.“Different providers will provide the necessary information in different formats, so there is still quite a task to compile this into a picture of the whole portfolio.”Meanwhile, the Department for Work and Pensions has yet to finalise the outcome of its recently ended consultation on removing various pension-scheme disclosure requirements.The disclosures were rendered largely redundant with the introduction of FRS 102.Lowes said: “It is just a question of going ahead with the changes to the regulations sooner to avoid any overlap.“I don’t think the extra information will add anything for the user. If anything, it will just confuse them.”last_img read more