Todd’s Take on the Market

U.S. stock markets struggled to find direction as COVID-19 cases surged, fiscal stimulus remained uncertain and the latest economic and earnings data were mixed. The S&P 500 ended 0.21% higher for the week, the Dow rose 0.07% and the NASDAQ rose 0.79%—essentially flat.

Earnings season got off to a good start. JP Morgan, Citigroup, BlackRock and Goldman Sachs reported good quarters. Wells Fargo—not so much—they are still in the penalty box. Even though these numbers were good, they weren’t enough to send the major averages higher. If you’re looking for help from earnings, a lot of the heavy lifting has already been done. All the banks (except for Wells Fargo) reported strong earnings, yet the Street has yawned. The 22 companies that had already reported before the banks—names including FedEx, Lennar and AutoZone—have also reported earnings well above expectations, with average beats of nearly 25%.

U.S. economic data gave investors a glimpse into how the economic recovery is unfolding. Generally speaking, the signs are conflicting: jobless claims, both initial and the four-week moving average ticked higher; retail sales figures surprised were well to the upside, though the prior month’s already disappointing results were revised lower; and industrial production figures disappointed, with manufacturing output falling and capacity utilization shrinking, echoing earlier declines seen in U.S. manufacturing PMIs. Despite this overall weakness, the U.S. economy is still not at risk of a “double-dip” recession—additional large-scale shutdowns and other aggressive policy measures seen in the earlier days of the pandemic will likely not be repeated, sparing GDP from another contraction. Still, for investors, this should mean one thing: while the pace of the economic rebound was at first extreme, in the absence of a vaccine, re-opening momentum will likely continue to fade. The recession may be over but the road to recovery is a long one, and investors should continue to broadly diversify to be more defensive.

U.S. Treasury yields edged lower last week due to rising COVID-19 cases, greater-than-expected jobless claims, and uncertainty surrounding fiscal stimulus. 10-year US Treasury yields declined to 0.74% following reports of delays in vaccine trials and release timelines. The Federal Reserve also announced that it would continue asset purchases to keep rates low as the Treasury market grows in volume.

Initial jobless claims rose last week, to 898,000. Analysts had expected a drop to 825,000. 25 million Americans are currently receiving unemployment aid. It’s been 11 weeks since Congress let the extra $600 aid expire and it’s been 30 weeks of jobless claims worse than anything seen before.

This is the third week that California has not reported as they recalibrate their counting. California’s number is plugged at 226,179 as it has been for three weeks now. When this data finally comes through (and I guess higher) it will be significant.

Retail sales were more than twice expectations, likely a lot of pent-up demand.

U.S. industrial production fell 0.6% in September, the weakest showing since spring. But consumers are confident—UMich Sentiment survey rose to 81.2, expectations were for 80.5, and the last reading was 80.4.

It is a big week for earnings and little economic data so we will see how those earnings can help us. It is more about a stimulus package and COVID cases. The stimulus package has one foot in the grave and another on a banana peel and COVID cases are trending in the wrong direction and with colder weather coming—those figures aren’t anticipated to go down.

Please stay tuned and we will keep you posted.

Todd Day, MBA

Portfolio Manager
Horizon Financial Services, LLC

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