Just Do It

Just do it.  Stocks reversed Tuesday’s slide after Trump changed course on his cancelling of stimulus negotiations. Lawmakers are now exploring a potential “skinny”, more targeted, deal in a last-ditch, stopgap plan.

N O T E W O R T H Y

Wolf, wolf! The commonly known tale: The Boy Who Cried Wolf is recited to children all over the world in one way or another.  The stories may all differ somewhat, but the message is consistent.  It is an important message, which is why it has stood the test of time. The story is said to originate in the Classical Era and was first written down in Greek... by the Ancient Greek’s, themselves.  It is that old! While we all know its basic message, it seems to have been forgotten, if not abandoned by lawmakers.  Let’s start from the top.  There is the Economy and there is the Stock Market.  They are not the same thing, though they are both intertwined.  The Economy has, in recent months, suffered a significant decline in the wake of pandemic-induced lockdowns.  It was no ordinary decline.  Unemployment was at record lows and the GDP had just enjoyed the longest expansion in modern times, making the decline that much more difficult.  The rescue effort was led by the Federal Reserve as they jumped into action with massive amounts of monetary stimulus. Soon after, lawmakers produced an unprecedented $2 trillion fiscal stimulus package.  Those stimuli helped to keep the economy from slumping further and begin to recover.  Of course, stimulus alone can't support the economy. The pandemic, which caused the fall, needed to be contained in order to get businesses back to capacity, people back to work, and consumption to resume. Stimulus is meant to keep the economy buoyant until therapies can be developed.  The search for a medical solution to COVID is close and the economy has begun to turn around, but it has been losing steam.  It is clear that further fiscal stimulus is needed to carry the economy to the finish line.  In any normal year, lawmakers would come together to pass further stimulus, but this already abnormal year has been marred with politics… it’s an election year, which makes it that much more difficult for political opponents to reach an agreement.  Where am I getting at with this?  The markets have been roiled by the on-again / off-again negotiations between lawmakers. The chaos hit a high point on Tuesday afternoon when the President abruptly announced his team’s withdrawal from stimulus talks.  Markets fell in disapproval. Not long after the market closed, a conflicting Tweet out of the White House gave new hope that some sort of a package might emerge.  Markets rallied yesterday as hope for a deal was renewed and many would attribute the rally to the President’s return to the table.  The reality is that markets have most likely already looked beyond the election, the Tweets, and soundbites.  Any deal that could emerge within the next few weeks would be limited.  No matter who wins the election, it is clear that a massive amount of stimulus will be forthcoming, which is comforting, albeit cold-comforting, to the markets. Therapies and vaccines show great promise and are within months of being approved, which should also provide some comfort to the markets.  It is important now for investors to ignore the noise, which will surely increase in volume in the weeks ahead, and focus on what is most important: a credible medical containment for the virus, that is the wolf we should all be looking out for.

THE MARKETS

Stocks rallied yesterday on renewed hopes for more economic stimulus.  The S&P500 rose by +1.74%, the Dow Jones Industrial Average climbed by +1.91%, the Russell 2000 Index advanced by +2.14%, and the Nasdaq Composite Index added +1.88%.  All of the major sectors were up yesterday.  Bonds slipped and 10-year treasury yields climbed by +5 basis points to 0.78%.

NXT UP

- Initial Jobless Claims (Oct 3) may have slowed to 820k from last week's 837k.

- Continuing Jobless Claims (Sept 26) are expected to have fallen to 11.4 million from the prior week’s 11.767 million claims.

- Today’s Fed speakers include George, Rosengren, and Bostic.