Monday Morning QB - Market Observations:
- Stimulus Hopes Ride the Emotional Teeter-totter of Conflicting News Out of Washington
- A Potential for Record-Setting Earnings is Afoot for the S&P 500
- Jobless Claims Continue to Show Economy is Recovering…People are Getting Back to Work
- National Association of Realtors Reported Home Sales rose 9.4% in September - Highest Level since 2006
- Consumer Spending Rose Last Month
- U.S. Reported Covid-19 Cases are Accelerating in Many States (more testing has led to more positive cases and sadly more hospitalizations but with a lower death rate)
Monday Morning QB - Market Performance:
Investors spent the week digesting dueling stimulus press conferences and parsing through earnings reports and economic data releases. The major U.S. benchmarks ended the week mixed.
The S&P 500 was negative for the week, snapping a three-week winning streak. The technology-heavy NASDAQ Composite, however, performed the worst, dragged lower by weakness in Apple.
The Dow Jones Industrial Average finished the week down 271 points to 28,336—a decline of -0.9%. The NASDAQ Composite finished down -1.1%. The S&P 500 gave up -0.5%, while the S&P 400 and Russell 2000 rose 0.9% and 0.4%, respectively.
Stimulus Politics Push Around the Stock Market
Investors and analysts alike are looking for a new injection of fiscal stimulus.
The on-again-off-again hope for a bill before the election has moved the market in both directions. Many believe, including our Federal Reserve, that a key to continuing our economic recovery is money finding its way to the hardest hit people of our current pandemic.
The stimulus watch has left investors locked into the news from Washington, waiting for an announcement of a deal between House Democrats and Senate Republicans in front of the election. Stimulus news dominated the headlines last week but, in the end, – No Deal.
Most investors can agree that additional stimulus will come at some point as Federal Reserve governors continue to push for more money out of Washington. Fed governor Ms. Lael Brainard said, "Apart from the course of the virus itself, the most significant downside risk to my outlook would be the failure of additional fiscal support to materialize."
The general investing public is mostly in agreement with the Federal Reserve.
Whoever wins the election can pick up a quick victory by bringing the next fiscal stimulus package to fruition or potentially send the stock market reeling if no deal is reached. I do not believe either Biden or Trump wants to be standing in the way of our economic recovery.
Should Biden prevail, history shows a significant piece of legislation getting passed in a "lame duck" session is unlikely, pushing relief into late January.
Solid Company Earnings Ignored in the Ongoing Stimulus Watch
Although we are only at the beginning of the earnings season, the results are off to a prosperous start.
According to FactSet, the percentage of S&P 500 companies beating EPS (Earnings per share) estimates for the third quarter, and the magnitude of the earnings beats, are at or near record levels with little market fanfare so far.
FactSet data shows, with 27% of the companies reporting earnings, an astounding 84% have reported actual EPS above estimates, which is well above the five-year average of 73%.
Suppose 84% is the final percentage for the quarter. In that case, it will mark a tie with the previous quarter for the highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008.
It is hard to imagine earnings results continuing to go unrewarded by the general investing public should the current pace of earnings beats hold through the end of earnings season.
Weekly Jobless Claims Reach Lowest Level Since March
New applications for unemployment benefits have fallen to the lowest levels since the coronavirus pandemic put the brakes on business activity back in March.
The jobs report released each Thursday showed initial weekly claims for jobless benefits fell by 55,000 to a seasonally adjusted 787,000.
The drop in unemployment claims can be attributed to employers recalling furloughed workers and online retailers staffing up for the holidays.
More good news came in the form of the prior two weeks' claims numbers being revised lower. The revised claims number for the week ending October 3—767,000—was the lowest since March 14.
Declining layoffs are another economic indicator showing our economy is on the mend from our pandemic-induced economic coma.
Yes, we have a long way to go back to pre-Covid-19 levels but moving in the right direction feels rather good. Here's to hoping the recent increase in cases does not halt our economic momentum.
Some Interesting Stock Market Data Around Election Results
I recently enjoyed sitting in a webinar presentation by Philip J. Orlando of Federated Hermes concerning the upcoming election. He was a terrific presenter with fascinating information, looking at the election through many different lenses.
One slide grabbed my attention. (See below.)
I have long been a believer that who, or more specifically, which party controls the presidency, has little significance on stock market performance. Many investors, including me, believe divided government is the preferred result for better stock market returns.
Divided government stops either party from moving the country too far in their preferred direction.
The chart below shows historical returns for the S&P 500 given various control combinations over the presidency, the senate, and the house. Based on the graph, it's easy to see why the stock market has performed well through both the Obama administration and the Trump administration, mostly divided government.
Regardless of your political beliefs, your portfolio is not looking forward to either a blue or a red wave.
If the presidency and the senate flip or just the senate flips, either scenario has historically produced the least in helping your stock portfolio.
Be sure to exercise your privilege to vote. It makes a difference.