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How Much Is Left in the Rally?

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What’s in Today’s Report:

  • How Much Is Left in the Rally?
  • Weekly Market Preview:  Can Stimulus Get Done?
  • Weekly Economic Cheat-sheet:  Jobless Claims and Inflation

Futures are modestly lower as markets digest last week’s rally following more lockdown announcements.

California enacted a de-facto state-wide shutdown in response to rising coronavirus cases, and that is the main headwind on futures this morning.

Regarding stimulus, optimism continued to grow that a deal around $1 Trillion can be struck in the next few weeks, although nothing definitive occurred over the weekend.

Economic data was sparse as German Industrial Production beat estimates and rose 3.2% vs. (E) 0.7%.

Today there are no economic reports and no Fed speakers, so focus will remain on stimulus chatter.  Senate Majority Leader McConnell remains the wildcard as he hasn’t yet voiced support for the current proposed bill, but if he does, that will significantly increase the chances it gets done before year-end (and that would cause another short term pop in stocks).

The New Market Dynamic (Lockdowns and Stimulus)

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What’s in Today’s Report:

  • Navigating the New Market Dynamic (Lockdowns and Stimulus)
  • Weekly Economic Cheat Sheet:  The Key Number is Today’s Flash PMI
  • Weekly Market Preview:  Lockdowns vs. Vaccine Optimism, Round 2.

Futures are moderately higher as the Astra-Zenica vaccine accountment is helping to offset still surging COVID cases and more economic lockdowns.

Astra-Zenica (AZN) announced its COVID-19 vaccine was 70% effective against the disease, but 90% effective when given in two doses (making it essentially on par with the Pfizer and Moderna vaccines).

Economically, flash November PMIs were mixed as the EU PMI missed estimates, while the UK PMI beat expectations, but both numbers declined from the October levels, reflecting the lockdown-related headwinds on the economy.

Today the key number is the November Flash Composite PMI (E: 55.6).  Markets will want to see stability in that number, but if it’s a bad miss then markets will grow more nervous about a potential “double dip” recession in early 2021, and that will hit markets regardless of the AZN vaccine news.

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

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).

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.

Tom Essaye Quoted in CNBC on October 16, 2020

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“The combination of no stimulus, fading economic momentum, and the threat of rising coronavirus cases…” said Tom Essaye, founder of The Sevens Report, in a note to clients. Click here to read the full article.

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.

Is A Blue Wave Really Good for Stocks?

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What’s in Today’s Report:

  • Is a Blue Wave Really Good for Stocks?

Futures are moderately higher again on momentum from the previous day’s rally, as it was another quiet night of news.

Economic data overnight was disappointing, as the Chinese Composite PMI missed estimates (54.5 vs. (E) 55.0), as did Japanese Household Spending and UK IP.

Politically, nothing  changed overnight, as no stimulus is expected until after the election.

Today there are no notable economic reports and only one Fed speaker, Barkin at 9:00 a.m. ET, so stimulus headlines will likely drive trading, as they have all week.