More Virus, Less Stimulus

More virus, less stimulus.  Stocks sold off yesterday, snapping a 4-day winning streak as investors did a reality check on what troubles us the most: the pandemic.  Earnings started out with a bang and investors were unimpressed, despite the would-be good news.

 

N O T E W O R T H Y

 

The butcher’s bill.  Yesterday was one of those interesting, but not altogether surprising days for the markets.  The morning news gave investors a dose of reality when Johnson & Johnson announced that it had paused its Phase 3 vaccine trials because of an unexpected illness. Side note: J&J also announced earnings yesterday morning, beating estimates and raising forward guidance.  Despite the good news regarding the health of the company, the stock fell on the bad news regarding the health of… well… the rest of us.  Later in the day, Eli Lilly announced that it, too, had paused its Phase 3 trials due to an unexplained index.  Lilly’s stock (LLY) ended yesterday’s session down by -4.41%.  You shouldn’t be surprised yet.  In the bigger picture for stocks, one needs to look no further than the S&P500 leaderboard to get an idea of what yesterday’s investment theme was.  Royal Caribbean, Norwegian, and Carnival topped the losers list, while Domino’s Pizza, Chipotle, and Clorox finished in the top ten. The slowdown in vaccine delivery disappointed, causing traders to bring out the virus play.  Oh, and remember the optimism around a new round of stimulus? Yesterday, the only thing shared between Dems and Republicans regarding stimulus was insults. That surely lent to the negative mood in the session.  But it wasn’t all bad news.  As is typical, Banks led the earnings season parade yesterday.  The initial results showed a rosier-than-expected picture for the pressured sector. JPMorgan Chase and Citigroup both beat estimates by +29.4% and +52.5% respectively.  This morning WHILE YOU SLEPT, Bank of America, US Bancorp. and PNC Financial all announced earnings which exceeded Wall Street estimates.  While the earnings beats are positive news, the most interesting development amongst the beleaguered group was its lower than expected provisions for credit losses.  JPMorgan provisioned only $0.61 billion, far lower than the expected $2.38 billion.  Similarly Citi provisioned $2.26 billion which was lower than the expected $3.95 billion.  The message here is that these banks are far more optimistic about their client’s health than analysts are. Speaking of loans, this has been a landmark year for credit issuance and loan origination.  Record low lending rates are certainly a driver for the surge, but clearly the economic downturn has created a need for capital to keep companies afloat.  As we emerge from the pandemic and the economy recovers, which it will, one has to wonder if the surviving companies will be able to thrive as they once did with an increased debt burden.  The banks that lent them the money certainly seem positive.  Investors are not convinced just yet.  The banking sector sold off in yesterday’s session by -2.72%, despite the upbeat announcements.

 

THE MARKETS

 

Stocks sold off yesterday, weighted down by halted trial announcements from J&J and Eli Lilly.  The S&P500 fell by -0.63%, the Dow Jones Industrial Average gave up -0.55%, the Russell 2000 Index traded off by -0.74%, and the Nasdaq Composite Index slipped by -0.10%.  Bonds advanced and 10-year treasury yields dropped by -5 basis points to 0.72%.

 

NXT UP

 

– Producer Price Index Ex Food and Energy (Sept) is expected to have increased by +0.2%, down from last month’s +0.4% growth.

– It is a big day for Fed speakers. The list of speakers include Barkin, Clarida, Quarles, Logan and Kaplan.

– This morning, UnitedHealth Group, US Bancorp, Bank of American, and PNC Financial all beat estimates.  We will also hear from Goldman Sachs and Wells Fargo before the bell while Alcoa and United Airlines are expected to report after the close.

 

 

daily chartbook 2020-10-14

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