A Historic Week Finally Arrives

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What’s in Today’s Report:

  • A Historic Week Finally Arrives
  • Weekly Market Preview:  This is a week full of potential catalysts including:  The election, the FOMC decision, the jobs report, a potential vaccine announcement, and more QE from the BOE.
  • Weekly Economic Cheat Sheet:  Jobs Report (Friday) is the key this week.

Futures are more than 1% higher following a generally quiet weekend as markets bounce ahead of a week full of potential catalysts.

Politically, Biden maintains a wide lead nationally but polls have tightened in some key swing states (FL/AZ/IA). But, markets do still expect the “Blue Wave” final result.

Economic data was solid was Chinese, EU and UK manufacturing PMIs all beat estimates (and remained above 50).

Today we do get one important economic report, the October ISM Manufacturing PMI (E: 55.7), but that shouldn’t move markets unless is a big negative surprise.  Instead, we’ll start to get headlines and whispers about how the election is shaping up (early voting totals, etc.) and those headlines are likely to move markets today and tomorrow.  So, don’t be surprised if markets get volatile today and tomorrow, but keep in mind almost all of it will be trading “noise.”

Is Stimulus the New QE?

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What’s in Today’s Report:

  • Is Stimulus the New QE?
  • Economic Data:  Jobless Claims Hit a Low for the Recovery

Futures are moderately lower following a disappointing night of earnings.

Super cap tech earnings were fine in general but didn’t meet lofty expectations, and AAPL, AMZN, FB and TWTR all dropped after posting results after the close.  GOOGL was the only major tech stock to rally after earnings, and that tech weakness is why futures are lower this morning.

Politically, it was a quiet night and according to the polls the Blue Wave remains the likely election outcome.

Today there are a few notable economic reports, including Core PCE Price Index (E: 1.7%), which is the Fed’s preferred measure of inflation, as well as Employment Cost Index (E: 0.6%) and Consumer Sentiment (E: 81.2).  But, they shouldn’t move markets unless there’s a major surprise in the inflation data.

Instead, focus today will remain on the latest polls (does the race tighten?  If so that will weigh on stocks modestly) and coronavirus response (do we get more lockdowns?).

Three Events That Would Make This Pullback Worse

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What’s in Today’s Report:

  • Three Events That Would Make This Pullback Worse
  • The One Underlying Reason for the Decline Yesterday

Futures are bouncing modestly from Wednesday’s drop following a generally quiet night.

There was no new coronavirus related news overnight as infection numbers continue to rise in Europe and the U.S.

Politically, polls are tightening but the market still expects a Biden victory, while the Senate remains a toss-up.

Today will be a busy day as it is the most important day of Q3 earnings, and we also get important economic reports.

First, on the earnings front, several of the most important tech stocks for the entire market report after the close, including:  AMZN ($7.30), AAPL ($0.69), FB ($1.94), GOOGL ($11.39), TWTR ($0.06).

Also this morning, we get two potentially important economic and central bank events.  First, weekly jobless claims need to hold last week’s gains (and stay under or close to 800k, which would reassure market the recovery is still ongoing).  Second, the ECB decision is this morning, and no change is expected to policy.  But, during the press conference, which starts at 8:45 a.m., markets will want to see ECB President Lagarde strongly hint more easing coming soon.

Finally, the financial media will likely highlight the Preliminary Q3 GDP which will likely set a record at 30.9%.  But, that number won’t move markets.  First, Q2 GDP fell by 31% (also a record), so that’s important context.  Second, it’s an “stale” number and the market is only interested in current looks at the economy, which is why weekly claims are the more important economic reading this morning.

Vaccine Playbook

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What’s in Today’s Report:

  • Vaccine Playbook (Results Hopefully Coming Next Week)
  • September Durable Goods Orders Takeaways
  • Consumer Confidence Miss (Chart)

Stock futures are tracking global shares lower this morning with European markets hitting multi-month lows as coronavirus cases continue to surge and multiple governments, including France and Germany, discuss new lockdowns.

There were no notable economic reports overnight and the only report in the U.S. today is: International Trade in Goods (E: -$85.0B).

There are no Fed speakers scheduled to speak today however the Treasury will hold a 5-Yr Note Auction at 1:00 p.m. ET, and given the fact that the yield curve has come into focus recently with the 10s-2s spread near 2020 highs, any material impact the auction has on the yield curve could impact stocks (new highs would be negative right now)

Finally, earnings season remains in full swing with: BA (-$2.33), UPS ($1.86), GE (-$0.06), and MA ($1.65) reporting ahead of the bell while V ($1.09) and F ($0.22) will release Q3 results after the close.

The recent resurgence in global COVID-19 cases and subsequent moves by multiple major governments to revert to lockdown measures to combat the spread of the virus has taken over as the main influence on risk assets right now, especially with hopes for a pre-election stimulus deal effectively dead at this point.

So today, the market’s main focus will be on the latest outbreak statistics and various governments policy reactions, especially in the U.S. And if we see renewed lockdowns implemented in various hotspots, then stocks could extend this week’s selloff, potentially in a big way.

Four Reasons Stocks Dropped Yesterday

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What’s in Today’s Report:

  • Four Reasons Stocks Dropped Yesterday (And Whether It Keeps Going)

Stock futures are bouncing modestly this morning following yesterday’s steep selloff amid rising COVID-19 cases globally and continued gridlock on stimulus in Washington.

There were no market-moving economic reports overnight leaving the focus on the latest resurgence in coronavirus cases as new infection rates test record highs across many of the world’s “hot spots.”

Today, there are two key economic reports to watch: Durable Goods Orders (E: 0.4%) and Consumer Confidence (E: 102.0) as well as two releases on the housing market: Case-Shiller House Price Index (E: 0.4%) and FHFA House Price Index (E: 0.7%).

There are no Fed officials scheduled to speak today but earnings season remains very busy with releases from: PFE ($0.70), MMM ($2.25), CAT ($1.15), RTX (0.48), and JBLU (-$1.91) due out ahead of the bell, and MSFT ($1.53) and AMD ($2.56) after the close.

Beyond those few potential catalysts, markets will remain keenly focused on the stimulus negotiations in Washington as hopes for a deal continue to fade which has weighed heavily on stocks in recent sessions. And if optimism for a pre-election aid deal continues to dwindle, that will likely remain a significant headwind on risk assets given the recent rise in COVID-19 cases globally.

Tom Essaye Quoted in SwissInfo.ch on October 22, 2020

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“Earnings are heating up and they are generally coming in healthy and better than expected. But with the stimulus saga dragging on and the election…” Tom Essaye, a former Merrill Lynch trader who founded “The Sevens Report” newsletter, wrote in a note. Click here to read the full article.

Tom Essaye

Tom Essaye Quoted in Benzinga on October 22, 2020

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Heading into Thursday night’s final presidential debate between President Donald Trump and former Vice President Joe Biden, Biden has a commanding lead in most polls and online prediction markets. The stock market has a lot riding on the election outcome, but Sevens Report’s Tom Essaye said this week three industries…Click here to read the full article.

Joe Biden

A Market Supported By Great Expectations

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What’s in Today’s Report:

  • A Market Supported by Great Expectations
  • Weekly Market Preview:  Earnings, Coronavirus and Polls are key this week.
  • Weekly Economic Cheat Sheet:  How Resilient is the Recovery?

Futures are down about 1% following a continued surge in coronavirus cases in the U.S. and Europe over the weekend, combined with disappointing earnings.

There were new records set in the U.S. and Europe for new daily coronavirus infections, increasing concerns about future growth-restricting lockdowns.

Tech giant SAP cut guidance and the stock is down 20%, which is weighing on the broad market.  SAP sighted coronavirus lockdowns as a reason for the guidance cut.

Today there is only one economic report, New Home Sales (E: 1.016M), and no Fed speakers.  Additionally, any hopes of a last-minute stimulus deal before the election seem to have been extinguished, although we still might get the “progress” or “positive” jawboning regarding the still on-going discussions.

Navigating a Policy Driven Market (All Blue Waves Aren’t the Same)

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What’s in Today’s Report:

  • Navigating a Policy Driven Market (All Blue Waves Aren’t the Same)

Futures are modestly higher after a much more typical Presidential debate and following mixed, but generally solid, global flash October PMIs.

October flash PMIs were mixed, as the European PMI was in-line while the Japanese PMI beat estimates and the British reading slightly missed.  But, none of the data was bad enough to cause an increase in worry about the global recovery.

Politically, the final Presidential debate was more retrained and substantive than the first, but analysts don’t see it materially altering the race.

Today we get one important economic report, the October flash Composite PMI (:E 54.2) and it needs to show a solid reading (so close to in-line) to reaffirm the economic recovery is just plateauing and not regressing.

And, of course, we will watch the daily stimulus headlines.  We left off Thursday with Pelosi sounding optimistic on a deal.  Again, while the back and forth on stimulus might move markets in the very short term, stocks don’t need stimulus before the Election – they just need to know it’s coming before year-end (which is almost certainly is).

What Happens to Markets If Trump Wins?

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What’s in Today’s Report:

  • What Happens To Markets If Trump Wins?
  • Oil Update and EIA Analysis

Futures are marginally weaker following negative stimulus headlines overnight.

President Trump tweeted that stimulus talks had again hit an impasse, implying there would be no deal before the election.  This has always been the base case for the market, but as we and others have said, as long as the market expects the $1.5T-$2.0T in stimulus before year-end, the breakdown in negotiations isn’t a major headwind on stocks.

Today, stimulus headlines will continue to move the tape in the short term, but we’ve also got an important economic report via weekly Jobless Claims (E: 868k) and if that number breaks above 900k, we’ll see concern start to rise the economic recovery is starting to slip.

Other notable events today include Existing Home Sales (E: 6.2M) and three Fed speakers: Barkin & Daly (1:10 p.m. ET), Kaplan (6:00 p.m. ET).

Finally, earnings season is starting to head up, and while stimulus talks are dominating the headlines, earnings are still important.  Some report to watch today include:  KO ($0.45), AAL (-$5.62), T ($0.77), LUV (-$2.44), UNP ($2.03), INTC ($1.10), COF ($1.99), STX ($0.98).