Markets, Economy

Weekly Kickstart (10/19/2020-10/23/2020)

10/19/20 8:00 AM

iStock-626627280.jpgStocks continued higher last week, as the S&P 500 rose by 0.19 percent to 3,483.81. That left the benchmark index up 7.83 percent 2020-to-date, and just 2.71 percent below the all-time closing high. Despite the continued uptrend the intraday price action was very choppy during the past few trading sessions, with political uncertainty again being a key driver of the volatility. Even though the bulk of the market’s attention should stay fixated on CARES 2.0 and the rapidly approaching election, another issue that investors will likely be monitoring over the next few weeks is the corporate earnings season for the third quarter of 2020. Indeed, the latest estimates suggest the S&P 500 will experience an aggregate profit decline of roughly 21 percent in Q3, which if true would be the second largest year-over-year drop in earnings reported since Q2 2009, as well as the sixth time in the past seven quarters in which the index has reported a year-over-year decrease in profits.

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All eleven sectors are projected to report a year-over-year earnings decline, led by Energy, Industrials, and Consumer Discretionary. However, as bad as the above numbers may appear they are not really too surprising considering how severe and abrupt the economic shock was that resulted from the lockdowns and other efforts to stem the spread of the pandemic, and as the crisis continues to fade the outlook will materially improve. In fact, analysts already project a broad return to earnings growth occurring as soon as Q1 2021, and at the very least all of the continued pessimism about corporate profits could create more opportunities for upside earnings surprises, just as we saw help fuel the market recovery earlier this year. The uncertainty still surrounding the fate of the next fiscal package and the November elections, though, could easily outweigh any good news on the earnings front, so volatility increasing in the near-term remains a possibility. Any regular investors uncomfortable navigating this environment should consider consulting with a professional financial advisor to make sure their positioning is properly aligned with their risk tolerance, nearness to retirement, and other unique variables. As always, we are here to help with any questions you may have.

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To recap a few of the things we learned about the economy last week, the positives included that small business owner optimism improved, consumer confidence firmed, household inflation pressures remained muted, and retail sales growth accelerated. As for the negatives, mortgage applications fell, wholesale inflation exceeded forecasts, regional gauges of U.S. manufacturing activity sent mixed signals, industrial production declined, capacity utilization slid, and the number of Americans making first-time claims for unemployment benefits unexpectedly rose. This week the pace of economic data remains slow but there are still a few important reports on factory output and housing scheduled to be released.

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What To Watch:

Monday

  • Jerome Powell Speaks 8:00 AM ET
  • Housing Market Index 10:00 AM ET

Tuesday

  • Housing Starts and Permits 8:30 AM ET
  • Randal Quarles Speaks 10:50 AM ET

Wednesday

  • MBA Mortgage Applications 7:00 AM ET
  • Lael Brainard Speaks 8:50 AM ET
  • EIA Petroleum Status Report 10:30 AM ET
  • 20-Yr Bond Auction 1:00 PM ET
  • Beige Book 2:00 PM ET

Thursday

  • Jobless Claims 8:30 AM ET
  • Existing Home Sales 10:00 AM ET
  • Leading Indicators 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • 2-Yr Note Announcement 11:00 AM ET
  • 5-Yr Note Announcement 11:00 AM ET
  • 7-Yr Note Announcement 11:00 AM ET
  • 5-Yr TIPS Auction 1:00 PM ET
  • Fed Balance Sheet 4:30 PM ET

Friday

  • PMI Composite Flash 9:45 AM ET
  • Baker Hughes Rig Count 1:00 PM ET
 

 

Sources: Econoday, FactSet, FRBSL

Post author: Charles Couch

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