A charwoman rides past the New York Stock Exchange (NYSE) on July 13, 2020 at Wall Street in New York City.
Johannes Eisele | Getty Images
Stock market optimism for a stimulus package has been rising, but the focus swings to earnings and that could be a matter-of-fact for stocks in the week ahead.
JPMorgan, Citigroup, Goldman Sachs, Bank of America and Morgan Stanley all release earnings in the outset big wave of corporate reports. There is also some important data, including CPI inflation data Tuesday and retail in stocks for September on Friday.
“It looks like earnings season might turn out better than expected, based on beforehand reports,” said Ed Keon, chief investment strategist at QMA. “The guidance looks pretty good. So, we have earnings seasoned upon us, the stimulus talks go back and forth, and it looks like maybe there’s a will to get something done.”
On Friday afternoon, the Undefiled House raised its offer for at stimulus package to $1.8 trillion but was still below the $2.2 trillion sought by Democrats. “It’s in the final analysis hard to read,” said Keon.
But he said even if there’s no agreement on stimulus now, there should be a package after the selection, regardless of who wins.
“I actually put some money to work in small caps on the belief if we get further stimulus either on the double or a few months from now, you do want to own economically sensitive stocks,” said Keon.”We’re reasonably constructive on the market and valuations are not inexpensive, but compared to the 10-year [Treasury yield] at less than 80 basis points, stocks don’t look that bad.”
Stales in the past week had their best performance since early July, with the S&P 500 up 3.8% at 3,477. The close cap Russell 2000 was up 6.4%. The 10-year Treasury yield had a big move during the week from about 0.70% to as prodigal as 0.79% Friday. Yields move opposite price, and the 10-year yield has now broken out of a range its been stuck in less than 0.70%.
Earnings could provide positive momentum for stocks, if companies continue to beat estimates at a healthy pace, groove on last quarter.
“Q2 reporting season saw S&P 500 earnings beat at an unprecedented rate, both in terms of breadth (85%) and greatness (+20%), prompting historically rare, strong upgrades to forward estimates, especially for the cyclicals, and one of the strongest earnings seasoned rallies on record,” wrote Deutsche Bank strategists.
The summer earnings rally came before the big September dip, which took the S&P 500 down about 10%. The S&P 500 is up more than 8% since Sept. 24.
“While the bottom-up consensus for Q3 is for a razor-sharp rebound in headline earnings, the bulk of it is being driven by reductions in loan loss provisions and Energy sector disadvantages. Excluding these, underlying earnings growth is forecast to barely move up (-15% to -13%), despite rising Q3 GDP excrescence estimates pointing to a strong macro rebound,” they noted.
The Deutsche strategists said the question remains, how in the world, whether the market will respond to earnings beats or election uncertainty.
Keon said the market has been thrilling up as former vice president Joe Biden extended his lead in the polls because there’s less chance of an uncertain view the more one candidate leads. According to RealClearPolitics, he was leading President Donald Trump by 9.7 percentage points, from impartial about 6 points at the beginning of the prior week.
“I think from the market’s perspective, it doesn’t really quantity who wins, as long as we have a clear winner,” said Keon. “I think the direction of the polls are suggesting that we’re prospering to have a clear winner either on election night or a few days after that. The risk of a messy contested choosing is going down, and the market is relieved by that.”
Tom Block, Washington analyst at Fundstrat, said Trump appears to be yearning for a stimulus bill signing before the election to help his re-election effort.
“There are many moving parts here, and they’re all emotional in different directions,” said Block. “It’s not impossible a deal comes together but the pathway to a deal is not clear on Friday afternoon because of the mongrel signals that have come out over the last seven days from the White House.”
Senate The greater part Leader Mitch McConnell has opposed a large package, and the two sides have been stalemated. “I think the president assumes that he will be helped by having a signed ceremony at the White House approving the bill, that the optics of consigning the bill that’s going to send relief to people is an optic he desperately wants, and it can’t hurt,” he said.
The economic reclamation is going on in the background, and some parts of the economy have shown real improvement, like housing.
Retail purchases on Friday is a good look at how the consumer has been faring, now that enhanced unemployment benefits have been gone for the past two months. Economists guess 0.6% gain in retail sales, the same as August.
Keon said it is important to get some more help for the conservatism through stimulus. There is expected to be one-time payments to individuals and enhanced employment benefits.
“That would be avail news for the market, if we could get more help where it is needed. We really just need to get a bridge for a more orthodox circumstances next year,” said Keon.
Week ahead calendar
Monday
Columbus Day observed
Bond retail closed, stock market operating on normal hours
Tuesday
Earnings: JPMorgan, Johnson & Johnson, Citigroup, BlackRock, Fastenal, First Republic
6:00 a.m. NFIB stingy business survey
8:30 a.m. CPI
12:25 p.m. Richmond Fed President Tom Barkin
2:00 p.m. Fiscal year 2020 federal budget
8:00 p.m. San Francisco Fed President Mary Daly
Wednesday
Earnings: Bank of America, Goldman Sachs, Wells Fargo, UnitedHealth, US Bancorp, PNC, Alcoa, Mutual Airlines, Accolade
8:30 a.m. PPI
9:00 a.m. Fed Vice Chairman Richard Clarida
10:30 a.m. Fed Vice Chairman Randal Quarles
3:00 p.m. Fed Vice Chair Quarles and Dallas Fed’s Kaplan on panel
6:00 p.m. Dallas Fed’s Kaplan
Thursday
Earnings: Morgan Stanley, Truist Economic, Walgreens Boots, Commercial Metals, Taiwan Semiconductor, Intuitive Surgical
8:30 a.m. Initial claims
8:30 a.m. Import prices
8:30 a.m. Empire structure manufacturing
8:30 a.m. Philadelphia Fed manufacturing
9:00 a.m. Atlanta Fed President Raphael Bostic
11:00 a.m. Fed Vice Chairman Quarles
11:00 a.m. Dallas Fed’s Kaplan
11:10 a.m. St. Louis Fed President James Bullard
5:00 p.m. Minneapolis Fed President Neel Kashkari
Friday
Earnings: Bank of NY Mellon, Townswomen Financial, Kansas City Southern, Schlumberger, JB Hunt, Ally Financial, VF Corp
8:30 a.m. Retail sales
8:30 a.m. Business gaffers survey
9:15 a.m. Industrial production
9:35 a.m. St. Louis Fed’s Bullard
9:45 a.m. New York Fed President John Williams
10:00 a.m. Consumer sentiment
10:00 a.m. Business inventories
4:00 p.m. TIC observations