Rumor Has It

Rumor has it.  Stocks rallied forward on Monday driven, once again, on hopes that the folks in DC will deliver some relief.  Tech was the engine that powered stocks higher on a low volume day.

 

N O T E W O R T H Y

 

A penny earned.  There has been lots of head-scratching on Wall Street lately.  In case you haven’t noticed, stocks are still quite volatile.  After all, despite the politically motivated soundbites that have been prevalent recently, the US is still in the midst of a pandemic… which continues to affect how we live, work… and consume.  When and how the virus will be contained is still largely unknown, but there is a sense that there is progress being made with some advances coming soon.  Compared to 6 months ago, there has certainly been a pick-up in activity outside the home, which would certainly lead to increased economic activity.  Still, we are far from where we were a year ago, when the economy was still growing and unemployment was near record lows.  Virus spikes and hotspots are popping up in the US and Europe, which appear to be under control, but serve as a reminder that COVID is still a thing.  Fear of the virus seems to be waning as the death rate associated with the virus trends down with the advancements made in treatment protocols. All of this has helped markets rise as investors look forward to the economy beyond the pandemic. Though these positive forces have been effective, they are not closely tied to any real facts. Though an economic recovery is factually under way, it is clear that further fiscal stimulus will be needed to push the economy over the finish line.  Washington, engulfed in political rancor, has been able only to produce rhetoric regarding a follow-up stimulus.  In the past few weeks however, traders have been more optimistic that some form of stimulus is imminent, which has helped stocks rise.  However the magnitude, the scope, or most importantly, the timing of a deal is unknown.  What the market is truly lacking right now is facts. The good news is that we are about to get a big delivery of facts in earnings season, which kicks into high gear today.  Generally speaking, analysts are expecting earnings to have improved by +5%  from the prior quarter.  For some context, Q3 earnings are still expected to be -20% lower than a year ago and they declined by -32% last quarter, so some positive movement would be surely welcomed.  Beyond the actual earnings themselves, investors are hoping that companies will provide some insights into how COVID continues to affect their business, how a second wave might impact future earnings, and business implications resulting from the upcoming elections.  Market reactions to the numbers will be messy because we know that beating analyst estimates is good, but not always good enough to cause a stock to rally.  Companies typically guide the investment community to expect less and attempt to deliver more, though it is not easy to do during an economic downturn, where companies themselves struggle to forecast sales.  There are also investor expectations to deal with. If investors are expecting “great things” from earnings and the company merely beats estimates by a small amount, selling may ensue.  In contrast, companies left for dead which manage to surprise on the upside may rally in a big way.  While getting some facts will certainly be a change from all of the headline speculation that has pervaded the markets in the past few weeks, there are still so many questions that will need answering by corporate managers.  We will surely get a dose of answers, if not a whole new list of questions, in this earnings season.

 

THE MARKETS

 

Stocks rallied further yesterday, led by mega cap technology stocks.  The low volume session was dominated by continued hopes of further stimulus.  The S&P500 rose by +1.64%, the Dow Jones Industrial Average climbed by +0.88%, the Russell 2000 Index advanced by +0.70%, and the Nasdaq Composite Index jumped by +2.56%.  The bond market was closed yesterday and 10-year treasury yields kicked off today’s session at 0.77%.

 

NXT UP

 

– This morning, NFIB Small Business Optimism (Sept) beat expectations, coming in at 104.0, above last month’s 100.2 level.

– CPI Excluding Food and Energy (Sept) is expected to have grown by +0.2%, slower than the past reading of +0.4%.

– Fed speakers for today include Presidents Barkin and Daly.

– This morning BlackRock, Johnson & Johnson, JP Morgan Chase, and Fastenal all beat estimates.  We are expected to hear from Delta Air lines, and Citigroup before the opening bell. Apple is expected to announce a new line of iPhones in an event today and Amazon kicks off its Prime Day.

 

 

daily chartbook 2020-10-13