Deal or no-deal. Stocks had a mixed closed on Friday as investors were underwhelmed with Thursdays Presidential debate, turning their focus back on a potential stimulus deal. Stimulus negotiations continue between the Speaker and White House officials, who continue to say nice things, but nothing about a done deal.
N O T E W O R T H Y
Strap in… tightly. Here we go! We are in the final full trading week before Americans will finalize their voting for the next President… and a few other influential folks. Many have already cast their ballots and the candidates will canvas the country to sway the undecided holdouts. Wall Street won’t be paying much attention to the campaign, but it will be quite active as many attempt to predict the election outcome and shift their portfolios to reflect any changes. Most of the polls leading up to this week appear to be in favor of a Biden win, though they did narrow somewhat in the past week, as is typical of all elections. Historically, many would have just assumed that Biden would win on election day, but Trump’s surprise victory in 2016 changed everything. Polls may not have the same credibility that they had in the past. Moreover, many academic predictors, sporting excellent track records, find themselves in a difficult position this year. Many of their prediction models use economic prosperity and stock market returns as inputs, but this year has thrown a few curve balls. Ya think? Still, mainstream Wall Street appears to be factoring in a Biden win with the Senate still up for grabs. Though there have been subtle market shifts that reflect a green deal, mass rotations that one would expect have not been apparent… yet. There is probably a good reason for that. Despite the headlines, soundbites, and… lots of volatility, many companies continue to struggle under the weight of the virus-induced recession. Under-performing industries like energy, banking, airlines, travel, and entertainment have all faltered year to date, but despite who gets the keys to 1600 Pennsylvania Ave next year, the health of those industries will be determined by the Coronavirus. Sure, different candidates have different views on priorities and regulations, but both will be principally focused on returning the US economy to the rails. Containing the virus will be priority 1 and re-invigorating the economy will be priority 2, blue or red. Stimulus will be a contributing factor in the latter, and though the window for a pre-election deal is closing fast, both sides' willingness to engage in discussion is a good sign that something will come soon. One side may lean toward spending more than the other, prioritizing slightly different beneficiaries, but a deal of any flavor would be favored by the markets. In the week ahead, expect a ratcheting up of discussion on candidates’ views on taxes, fracking, healthcare, China, renewable energy, infrastructure, and regulations. Those discussions will certainly add to the volatility of the markets, but will have little impact on where the market will be in say, a year from now. There are some real signs that the US economy is clawing upward but it remains on tenterhooks. More stimulus will be needed to sustain the comeback and hopefully that will arrive soon. Over the weekend WHILE YOU SLEPT, there were no fewer than 3 companies who reported that they had edged closer to getting approval for a virus therapy. Someone once gave me a bit of good advice about skiing through trees. The advice was something like: do not focus on the trees themselves, but rather on the path through them. If you focus too intently on a tree, you are more likely to hit it. It turned out to be good advice and saved me from a bunch of bruises, if not a spoiled ego. The exact same advice can be applied to investing, especially in the weeks ahead. There will be lots of trees and bumps ahead, but our best chance for emerging unscathed is to focus on the path through them. Remain focused on your long-term, core investment strategy… long game always wins.
THE MARKETS
Stocks had a mixed close on Friday as hopes of a near-term stimulus package are still alive, but weakening quickly. The S&P500 rose by +0.34%, the Dow Jones Industrial Average slipped by -.010%, the Russell 2000 Index climbed by +0.63%, and the Nasdaq Composite Index added +0.37%. Bonds advanced marginally and 10-year treasury yields gave up -1 basis point to 0.84%.
NXT UP
- Chicago Fed National Activity Index (Sept) is expected to have grown by +0.73% compared to last month’s +0.79%.
- New Home Sales (Sept) may have grown by +1.4%, slower than last month’s +4.8% growth.
- This morning Otis and Hasbro beat estimates while HCA Healthcare missed. After the bell we will hear from K12, F5 Networks, Twilio, and Chegg.
- In addition to many earnings releases, the week ahead will be full of economic releases including Durable Goods Orders, more housing numbers, Consumer Confidence Index, GDP, Personal Consumption. Personal Income, Personal Spending, PCE Deflator, numerous regional Fed reports, and University of Michigan Sentiment. Please refer to the attached earnings and economic release calendars for details.