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.