The Week on Wall Street
Stocks treaded water last week amid fading prospects for a stimulus bill, fears of a second wave of COVID-19 cases, and increasing political and regulatory pressures on Big Tech companies.
The Dow Jones Industrial Average added just 0.07% while the Standard & Poor’s 500 eked out a gain of 0.19%. The Nasdaq Composite index picked up 0.79% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slid 2.08%.
The stock market began the week by posting strong gains on hopes of a fiscal stimulus bill. Also, investors were optimistic that earnings season would reflect an improving picture of corporate performance. Stocks stumbled midweek on a mixed bag of early earnings results, and an increase in COVID-19 cases in the U.S. and Europe. Disappointing news on some key COVID-19 treatment trials also weighed on the market, as did a jump in new jobless claims and a continued stalemate on a fiscal stimulus package.
Stocks attempted to rally on Friday, emboldened by strong retail sales, but lost momentum as trading came to a close.
Earnings Season Kicks Off
Earnings season began on an upbeat note as major banks mostly beat on revenue and profit expectations. Banks attributed the strength to rising consumer deposits, a drop in the amount of money set aside for failing loans, and strong results from their investment banking and trading units.
Airlines fared less well. Investors were disappointed with the quarterly reports even though the average daily cash burn at these companies generally improved. Airline management uniformly accompanied their earnings announcements with warnings of continued near-term weakness due to COVID-19.
THIS WEEK: KEY ECONOMIC DATA
Tuesday: Housing Starts.
Thursday: Jobless Claims. Existing Home Sales. Index of Leading Economic Indicators.
THIS WEEK: NOTABLE COMPANIES REPORTING EARNINGS
Monday: Halliburton (HAL), PPG Industries (PPG), International Business Machines (IBM)
Tuesday: Netflix (NFLX), Lockheed Martin (LMT), Procter & Gamble (PG), Snap (SNAP), Texas Instruments (TXN)
Wednesday: Verizon (VZ), Abbott Laboratories (ABT), CSX Corp. (CSX), Chipotle Mexican Grill (CMG)
Thursday: AT&T (T), Intel Corp. (INTC), Coca Cola Co. (KO), American Airlines (AAL), Southwest Airlines (LUV)
Friday: American Express (AXP)
The news headlines suggest the market is banking on another round of stimulus from Washington. There’s also anticipation (or at least reporting) of a ‘blue wave’ ushering in both regime change in the White House and the Senate. If so, a round of government spending and higher corporate taxes is likely. However, it’s more complex than that. The markets aren’t tracking the headlines per se. In fact, headlines seem more inclined to sell an outcome than report the news these days. The markets are seeing the bigger picture for what it is: stimulus regardless of who is in the White House. This is less a political prediction than a reality check. The Fed has suggested stimulus is required to keep the ship from capsizing. Now Washington is just jockeying for political points. If the market is correct, stimulus is a forgone conclusion. Now we’re arguing over when and how much.
In the very short-term, markets are less concerned in the short-term about Trump or Biden. They want to know when the money starts falling from the sky. This doesn’t mean the markets don’t care who wins the election. It just means the markets aren’t looking out that far right now. “Free” money is a pretty powerful incentive to shorten time horizons. Longer-term the pace of growth for the markets will absolutely be impacted by one regime over another. Right now, the markets want to know where the next round of lighter fluid is coming from.
Have a great week!