The ETF Investor Guide for October 2020

The October Issue of the ETF Investor Guide is AVAILABLE NOW! Links to the October Data Files have been posted below. Market Perspective: Historic Home Buying Boosts Economy The accelerating economic […]

Market Perspective for October 26, 2020

The major stock indexes responded to an increase in coronavirus cases and concerns of potential lockdown measures across the country. Furthermore, selling was driven by traders reversing election bets as polls show the election tightening. Traders did the same thing in 2016 before furiously buying stocks on the day after the election. Rather than an indication in a loss of confidence in the markets, the dip should be viewed in the context of a temporary reaction to a spike in case counts and speculation over the upcoming election.

The Dow marked its lowest trading day since September 3 with a loss of 2.29 percent. It closed under 28,000 for the first time in 20 days. Twenty-nine out of 30 Dow stocks traded down for the day.

The S&P 500 ended the day down 1.86 percent, which accounted for its worst trading day since September 23. However, the S&P 500 is up 5.27 percent for the year. Even with today’s significant sell-offs, the S&P 500 is still trading more than 5 percent above its next support level.

The Nasdaq ended the day with a 1.19 percent loss, which was its worst trading day over the past week. The Russell 2000 closed the day with a 2.15 percent loss.

All 11 sectors rounded out the day with a loss. Energy reported the most significant decline of 3.47 percent.

Stocks hit hardest by the day’s sell-offs included airlines and cruise companies, which are more acutely subject to concerns over another round of potential nationwide lockdowns. Royal Caribbean Cruises (RCL) closed down 9.64 percent and Carnival (CCL) closed down 8.66 percent. On the other hand, companies like Amazon (AMZN), which are poised to benefit from the stay-at-home orders traded up for the day, albeit only 0.80 percent

Continued optimism surrounding progress on the vaccine front will drive immediate gains in pharmaceutical companies. AstraZeneca PLC (AZN) traded up 2.06 percent for the day with positive news regarding Phase 2 trials of its experimental coronavirus vaccine. Data showed an immune system response in both the most vulnerable older age group along with young adults in its clinical trials.

In addition, the timing of the coronavirus stimulus package remains a significant driver of consumer optimism. Renewed talks between Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi wrapped up today with Pelosi affirming her positive outlook that a final agreement on the relief bill could happen before the presidential election. As an encouraging sign of progress on stimulus negotiations, Pelosi stated in a letter to Democratic lawmakers that the differences in proposals for a national coronavirus testing policy is the major obstacle to finalizing the deal. It seems the financial aspects of the stimulus package appear to be substantially ironed out between the White House and Democratic lawmakers.

The markets have likely absorbed the biggest blow in terms of reactions to a spike in case counts in the U.S., although investors will be keeping a keen eye on developments in Europe, as the region is considered to be in front of the U.S. in terms of coronavirus trends, especially for the timing of potential lockdowns.

Both the Conference Board and University of Michigan will release their October consumer confidence surveys this week. Forecasters expect a small increase in both.

The first estimate of third quarter GDP is out on Thursday. The consensus forecast is 32.7 percent. Blue chip economist consensus is a little lower at 29.9 percent, while the Atlanta Fed’s GDP Now model predicts 35.3 percent.

Earnings season peaks this week with a slew of blue chip reports. On Tuesday, investors will hear from Microsoft (MSFT), Advanced Micro Devices (AMD), Pfizer (PFE), Caterpillar (CAT), Merck (MRK), 3M (MMM), Raytheon Technologies (RTX), Eli Lilly (LLY) and Akamai (AKAM).

Wednesday brings Gilead Sciences (GILD), Boeing (BA), Visa (V), General Electric (GE), Mastercard (MA), Ford (F), Amgen (AMGN), United Parcel Service (UPS), Anthem (ANTM), Boston Scientific (BSX), Vale (WALE), eBay (EBAY), Teladoc (TDOC) and ServiceNow (NOW).

On Thursday, Amazon (AMZN), Facebook (FB), Apple (AAPL) and Alphabet (GOOGL) reporting. Twitter (TWTR), Shopify (SHOP), Starbucks (SBUX), ConocoPhillips (COP), Comcast (CMCSA), Spotify (SPOT) and Fidelity National Information (FIS) also deliver earnings.

The week closes out with Exxon (XOM), Chevron (CVX), Charter Communications (CHTR), AbbVie (ABBV), Honeywell (HON), Colgate-Palmolive (CL), Altria (MO), Under Armour (UA) and Phillips 66 (PSX).

Crude oil bounced off its 200-day moving average on Monday and closed at $38.56 per barrel. Cold weather across parts of the nation and another storm in the Gulf pushed natural gas prices up to $3.25 per mmBTU.

While reactionary sell-offs can appear momentarily alarming, they should not necessarily be viewed as an indication of a reversed course with respect to the fairly steady recovery that the economy has experienced.

 

Market Perspective for October 24, 2020

At the close of the trading week, the major market indexes held up well against expected volatility due to the presidential election. Despite a minor drop in the Dow, the other major indexes posted a day of gains and appear to be on track to continue positive trading trends over the coming week.

The drop in the Dow on Friday was largely due to a 10 percent dip in Intel (INTC) shares, which pushed the index down 0.95 percent for the week. Intel’s revenue reports were lower than expected, especially with respect to its data centers. Investors remain largely unmoved by the marginal dip based on a longer-term perspective on the relatively positive performance of the index over the past month. The fact that the recent drop in Intel shares had a direct effect on the marginal drop for the Dow also indicates that any temporary losses are predominantly contained to individual corporations.

The Nasdaq closed out Friday on a positive note with a 0.37 percent gain. The day’s trading gains pushed the Nasdaq to its third positive day out of the last four, bolstering confidence the index is tending upwards and poised to hold on to its recent gains. While the Nasdaq closed down 1.06 percent for the week, this was only the index’s first down trading week of the last five.

The S&P 500 followed a similar trading pattern as the Nasdaq for both the day and the week. The index rounded out the day with 0.34 percent in gains, which marks its third day of positive trading out of the last four. The S&P 500 dipped 0.53 percent for the week, which was only its first week of losses out of the last four.

The Russell 2000 ended the trading week up on Friday, returning 0.41 percent for the week.

Out of the 11 sectors, communications reflected the strongest gains for the week with 1.09 percent. SPDR Communication Services (XLC) advanced 2.14 percent this week. Shares of Facebook (FB) returned 7.09 percent. Alphabet (GOOGL) shrugged off a government anti-trust lawsuit and rose 4.14 percent.

Proctor & Gamble (PG) said continued lockdowns helped drive sales of home cleaning products. Analysts projected $1.01 per share in earnings, but the company delivered $1.16 per share. Tesla (TSLA) announced its fifth-consecutive quarter of positive earnings, and it earned 76 cents per share, higher than the 56-cent consensus forecast. Snap Inc. (SNAP), maker of the SnapChat app, saw its shares surge 55 percent after it reported a 1 cent profit per share versus the forecast 5-cent loss.

SPDR Financial (XLF) increased 1.02 percent this week. SPDR S&P Bank (KBE) jumped 6.43 percent and SPDR S&P Regional Banking (KRE) 8.04 percent.  All were lifted by rising interest rates. The 10-year Treasury yield touched 0.88 percent on Friday before settling at 0.84 percent, up 0.08 percent on the week.

Building permits, an indicator of future housing starts, increased to an annualized pace of 1.553 million. Existing home sales hit 6.54 million, also higher than anticipated. The National Association of Home Builders’ said its homebuilder confidence index hit a new all-time high of 85.

Flash manufacturing and service PMIs show the economy strengthened in October. The service PMI saw a jump from 54.6 to 56.0.

Initial claims for unemployment tumbled below 800,000 this week. Continuing claims continued their weekly decline of 1 million and hit 8.37 million for the week ending October 10th.

Coronavirus relief legislation remains the most anticipated development for maintaining relatively strong performances across the indexes in light of the economic consequences of the pandemic. In positive news for progress on the passage of a relief package, U.S. House Speaker Nancy Pelosi conformed this week that an agreement on the coronavirus stimulus proposals is still possible before the Nov. 3 presidential election. This aligns with the optimism of Treasury Secretary Steve Mnuchin, who reiterated that the White House remains committed to reaching an agreement on coronavirus relief funding as soon as possible.

From the comparatively stable or positive trading gains this week, the markets seem to be anticipating some form of pandemic stimulus package on the horizon, and any delay in the timing of an agreement on competing proposals does not seem to be getting in the way of relative gains. As such, the eventual implementation of a stimulus package, in whatever form it is ultimately passed by Congress and signed by the President, is expected to usher in a round of extremely positive market activity.

Even with the expected uncertainty in market activity surrounding the upcoming presidential election, the major market indexes are all holding exceptionally strong and have eased potential concerns that the flurry of election activity could put a damper on trading.

 

The Investor Guide to Vanguard Funds for October 2020

The Investor Guide to Vanguard Funds for October is AVAILABLE NOW! Links to the October data files are posted below. Market Perspective: Further Stimulus Likely to Boost Stocks Equities have rallied […]