Three Market Takeaways from the First Presidential Debate

The first presidential debate is now in the books, with two more (maybe) ahead and a vice presidential debate on October 7. The debate was raucus, occasionally uncouth, and more than a little surreal for viewers at home. But did anything happen that could potentially move markets? Probably not.

“Despite the chaos, viewers probably came out of the debate with largely the same impression of the candidates they came in with,” said LPL Financial Chief Market Strategist Ryan Detrick. “We expect markets will likely take a similar view.”

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How Stocks Do Around The First Debate

The first presidential debate is tonight, September 29, with millions of people expected to tune in to see how each candidate handles the pressure. With tensions heightened amid an election that may be much closer than the polls currently suggest, any potential mistake could be magnified exponentially.

Wednesday we’ll summarize our takeaways from the event, but today we’ll take a closer look at how stocks historically have performed around a first presidential debate.

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How Corporate Bond Spreads Respond to Equity Market Volatility

An old Wall Street adage says bond markets are smarter than equity markets, so when stocks encounter volatility, investors often look to the bond market for clues about the potential severity of equity market weakness.

The option-adjusted spread (OAS), a key data point, adjusts a bond’s yield for any unique features of the bond in an effort to make various bonds more comparable to each other. Since US Treasury bonds are generally considered safe-haven assets, the OAS of corporate bonds as a group is often based on a comparison to Treasury yields to determine bond investors’ perception of credit risk. The OAS reflects the additional yield investors may require to compensate for the specific risks in corporate bonds.

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What Technology’s Correction Means

The recent correction in the S&P 500 Index’s technology sector presents a unique challenge to markets following a historic stretch of outperformance as technology’s share of the market has ballooned in size. Despite September weakness in this sector that has dragged the broader market lower, we expect technology leadership to continue given supportive underlying fundamental and technical conditions.

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The Bull Case for Stocks

Markets have been on a wild ride in September so far, with a strong first two days of the month followed by one of the sharpest 10% corrections ever for the NASDAQ. The case can be made that stocks may move higher over the rest of 2020 despite a number of risks, including a possible increase in COVID-19 cases, heightened US-China tensions, and election uncertainty.

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Top 10 Investor Questions

Many investors, ourselves included, find it difficult to understand why stocks have done so well lately in such a challenging economic environment and COVID-19 still an ongoing threat. We heard that question quite a bit at our annual national conference for LPL financial professionals held virtually in late August. That isn’t the only question we’ve been getting recently, so we’ve compiled our top-10 investor questions and answers.

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