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Market Outlook in A Divided Government

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What’s in Today’s Report:

  • Market Outlook in a Divided Government
  • Macro Landscape Beyond Politics (It’s Getting More Positive)
  • FOMC Preview

Futures are sharply higher again thanks to momentum from Wednesday’s rally, combined with more than expected QE from the Bank of England.

The Bank of England will increase its QE program by 150 billion Pounds, larger than the expected 100 billion, underscoring that global central banks are become more active in supporting their economies.

Politically, markets expect Biden to reach 270 electoral votes today with the official call of Nevada (which would put him exactly at 270).  The market is viewing the election as largely decided despite what will be a myriad of legal challenges.

Today the big event is the FOMC Announcement (2:00 p.m. ET) and Fed Chair Press Conference (2:30 p.m. ET).  I’d expect the Fed will keep a lower than normal profile given the election uncertainty, but the market’s focus will be any commentary that implies it’s open to more QE (if they don’t mention it, we could see mild disappointment like we saw in September).

Beyond the Fed and election headline watching, we also get weekly Jobless Claims (E: 745K) and markets will want to see that number continue to decline.

Election Roadmap Update (What’s It Means for Markets?)

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It’s been a very late night and a very early morning and much of this analysis has been changing by the hour, and as such hasn’t been edited.  Please forgive any excessive typos.

What’s in Today’s Report:

  • Election Roadmap Update (It’s All About Tier 3 Now)
  • Three Key Takeaways from Last Night’s Election (No Blue Wave But Maybe a Contested Election)
  • What’s Next:  When We Can Expect Results From the Six Remaining States

Futures have gyrated wildly throughout the night on the shifting election outlook but as of this writing they are  marginally higher.

In the Presidential election numerous (seven) states remain undecided and the Presidential race is very close.

Republicans have outperformed in Senate races and are now favored to hold the majority, likely yielding a divided government.

Today focus will remain on the election and specifically when the remaining six states (NC/GA/PA/MI/WI/NV) are called.

Outside of the election, we also get the ADP Employment Report (E: 600K) and the ISM Services Index (E: 57.6), but while important reports, they’ll be overshadowed by the election headlines, and we need to be prepared for a lot of “noise” and intra-day volatility.

Election Roadmap

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What’s in Today’s Report:

  • Election Roadmap

Stock futures are rising with global shares this morning as the U.S. election comes into focus after a mostly quiet night of news.

There were no notable economic reports or market-moving COVID-19 developments overnight leaving investors focus almost exclusively on today’s election.

There are two economic reports today: Motor Vehicle Sales (E: 16.5M) and Factory Orders (E: 0.6%) but neither should move markets and no Fed officials are scheduled to speak ahead of this week’s FOMC meeting.

There are a few notable earnings releases to watch today that could influence sector trading: MCK ($3.87), HUM ($2.86), SYY ($0.20), and PRU ($2.69) but none of the quarterly reports are likely to have a significant impact on the broader market.

Today, the election will clearly be in the forefront of investor focus, specifically how close the races in key swing states turn out to be. Ultimately, the markets want clarity, and the main threat to risk assets this week is the emergence of a contested election, so if races are tight enough for campaigns to sue to halt or extend recounts, expect a reversal of this morning’s rally and potentially significant risk-off money flows in the sessions ahead.

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.

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.

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).

A Familiar Question: 1998 or 2000?

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What’s in Today’s Report:

  • Stimulus Negotiations Update
  • A Familiar Question: 1998 or 2000? (Yield Curve Update)

Stock futures are flat after wavering between gains and losses overnight as investors hold out hope for a last minute stimulus bill while COVID-19 cases continued to rise around the globe.

There were no notable economic releases overnight and no major data points are due to be released today.

Looking into today’s session the lack of economic data will leave investors interested in Fed chatter with several officials speaking over the course of the day: Brainard (8:50 a.m. ET), Mester (10:00 a.m. ET), Kaplan, Daly, & Kashkari (12:00 p.m. ET), Barkin (1 p.m. ET).

Earnings will also continue to be closely watched with multiple notable reports due to be released today: VZ ($1.22), WGO ($0.90), AN ($1.63), TSLA ($0.58), CMG ($3.44), CSX ($0.93), and DFS ($1.63).

While the aforementioned factors will continue to be monitored by investors today, stimulus remains by far the most important influence on markets right now and any progress towards a sizeable, market friendly deal that is actually passable in the near term could trigger a big rally in stocks. Conversely, if talks fall apart and the timeline for a deal is pushed back, we could see stocks begin a potentially steep pullback on the news.

Asset Allocations (Long and Short Term)

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What’s in Today’s Report:

  • Thoughts on Asset Allocations (Short and Long Term)

Stock futures are trading higher this morning amid cautious optimism for a last-minute stimulus deal.

There were no market-moving economic reports overnight however updates from Washington suggest that Speaker Pelosi and Treasury Secretary Mnuchin are continuing to make progress towards a deal ahead of today’s deadline.

Looking into today’s session, there is one economic report ahead of the bell: Housing Starts (1.451M), and a few Fed speakers: Quarles (10:50 a.m. ET), Evans (1:00 p.m. ET), Brainard (3:00 p.m. ET), and Bostic (5:00 p.m. ET).

Earnings season is continuing to pick up with several notable corporations releasing Q3 results today: LMT ($6.07), PM ($1.35), PG ($1.43), SYF ($3.47), TRV ($2.94), NFLX ($2.12), SNAP (-$0.05), and TXN ($1.26).

Bottom line, the economic data and Fed chatter likely won’t move markets today and while earnings could influence the price action in specific sectors, investor focus is almost exclusively on Washington and today’s deadline to reach a stimulus deal. So, reports of progress towards a deal will be supportive of stocks recovering from yesterday’s declines while news that the two sides remain far apart on certain issues could see stocks fall to fresh multi-week lows.

Sevens Report – October Economic Breaker Panel

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What’s in Today’s Report:

  • October Economic Breaker Panel:  How Long Can the Economic Plateau Last?

Futures are sharply lower as surging coronavirus cases in Europe are sparking fears of another self-imposed economic slowdown.

New lockdowns were announced across Europe, with some of the toughest measures coming in London and Paris.

Today there are several important economic reports, including Jobless Claims (E: 833K), Empire State Manufacturing (E: 14.5) and Philly Fed (E: 14.5).  Markets will want to see jobless claims get below 800k to show the labor market is improving, while Empire and Philly provide the first look at October economic data and markets will want to see stability.  With futures down sharply, any disappointment in the economic data could exacerbate the losses.

We also get multiple Fed speakers today, Bostic (9:00 a.m. ET), Kaplan (11:00 a.m. ET), Quarles (11:00 a.m. ET) plus some notable earnings, TSM ($0.92), WBA ($0.96), MS ($1.26), but I don’t think any of that will move markets unless there’s a big surprise lurking.

Three Sectors to Watch if Biden Wins

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What’s in Today’s Report:

  • Three Sectors to Watch if Biden Wins

Stock futures pulled back overnight on news that JNJ halted a phase 3 trial for a COVID-19 vaccine due to an adverse reaction in one of the volunteers, however, futures have since stabilized and are only modestly lower this morning.

Economically, Chinese trade data showed that exports continued to rise in September, up from 9.5% to 9.9% pointing to an ongoing recovery in the Chinese economy.

Today, there is one economic release due ahead of the bell: CPI (E: 0.2%) and one Fed speaker late this evening: Daly (8:00 p.m. ET) but neither is expected to materially move markets given the other market influences on the calendar today.

The first of which is the start of Q3 earnings season with several big names scheduled to release results including: JPM ($2.35), C ($1.01), DAL (-$3.10), JNJ ($1.99), FAST ($0.37), FRB ($1.38), and BLK ($7.46).

Additionally, today is Amazon’s “Prime Day” so online shopping activity will be significantly elevated but if initial reports suggest a weaker than anticipated consumer turnout, the disappointment could weigh on stocks.

Apple is also set to unveil the latest iPhone models at a product launch and given the weight the stock carries in the major indexes, a good event will be good for markets while an underwhelming event could see a good portion of yesterday’s gains given back.