Stimulus Hopes Rise Ahead Of Election As Street Braces For Earnings Flood

It’s around the market in 80 earnings reports this week.

While the flood of corporate results normally would soak up most of the attention, fiscal stimulus hopes pushed to the front of the line this morning. Things start with a firmer tone after weekend talks appeared to make progress, but we’ve heard this story before. People might be skeptical until something more solid is on the table.

It isn’t too surprising that stimulus talks are coming down to the wire here two weeks before the election. That’s the timeframe when the market’s focus is likely to turn more toward the vote. You might want to start watching some sectors to see if more money moves around the next couple of weeks as the vote gets closer and people take its potential market impact more seriously. Sectors to watch for possible election-related moves include Financials, Health Care and Energy.

The approaching election—along with rising COVID cases—could be one reason volatility ticked a little higher early Monday even as stock indices rose in pre-market trading. A lot of the time, a rise in volatility accompanying a rise in stocks can signal that either one or the other is due to get pulled back.

The earnings tsunami starts today with IBM (NYSE:IBM) and Halliburton (NYSE:HAL). Seventy-eight other companies join the reporting frenzy before Friday night. And this isn’t even the most crowded earnings week by volume. That’s a bit later this month.

Also on tap: Lots of Fed talk, opening right now as Fed Chairman Jerome Powell participates in a discussion at the International Monetary Fund (IMF) meeting. That’s followed by Vice-Chair Richard H. Clarida delivering a speech called, “U.S. Economic Outlook and Monetary Policy” at the American Bankers' Association Convention. All virtually, of course.

There’s news from overseas to start the week, too. China’s economy grew 4.9% in Q3. Normally that wouldn’t be cause for celebration when you consider average growth in China was above 6% until this year for years and years. Also, the figure is just below analysts’ expectations. Still, growth for 2020 is now in positive territory at 0.7%, not a bad showing considering the way this year’s gone for China and the world.

Wondering when we’ll get a look at U.S. Q3 gross domestic product? It’s due a week from Thursday, and hopefully looks better than the 31% nosedive of Q2.

EARNINGS PACE STARTS TO PICK UP WITH TESLA, NETFLIX AMONG BIG NAMES
We’re getting into the heart of earnings. This week’s calendar looks like a who’s who of the S&P 500, featuring a wide mix of firms including
Lockheed Martin (NYSE:LMT), AT&T (NYSE:T), Coca-Cola (NYSE:KO), Philip Morris (NYSE:PM), Tesla Inc (NASDAQ:TSLA), Abbott Labs (NYSE:ABT), Verizon (NYSE:VZ), Intel (NASDAQ:INTC) and our first FAANG sighting of the season with Netflix (NASDAQ:NFLX).

By the end of the week, investors should have a far better picture of how reporting season is going. Next week is another crowded schedule, though.

The FAANG fun begins tomorrow with NFLX. Some Wall Street analysts worry the streaming company’s new release pipeline might be drying up, along with the hefty subscriber growth NFLX enjoyed earlier this year as the pandemic took hold. Others are optimistic heading in, saying NFLX continues to reap benefits from the stay-at-home economy even as it faces some challenges.

Investors normally keep a close eye on subscriber growth, and this quarter is no different. As of the end of the Q2, NFLX’s total global subscriber base sat north of 192 million, some 73 million of which were from the U.S. For Q3, NFLX previously issued new subscriber guidance of 2.5 million. So that’s the number to beat.

While we’re talking corporate news, General Electric (NYSE:GE) ended up having a big day Friday thanks in part to media reports that Europe’s aviation regulator said Boeing's (NYSE:BA) 737 Max aircraft is safe to fly again. GE is a big supplier of BA’s, so this move offered a good lesson on how important it is to pay attention to market relationships.

For the week ended Friday, Tech stocks gained some traction as the Nasdaq 100 finished up 1%, but the SPX barely moved. The small-cap Russell 2000 (RUT) fell back on Friday after showing some life mid-week. There’s a chance RUT could be a good election barometer, as some investors think domestic companies (widely represented by the index) would possibly take less of a hit than big multinationals from any kind of new corporate tax regime. Stay tuned.

In data last week, inflation looked unremarkable while retail sales turned into a bright spot. Key numbers to watch in coming days include September housing starts and building permits tomorrow morning, along with initial weekly jobless claims and existing home sales on Thursday.

Analysts look for housing starts tomorrow at a seasonally-adjusted annual rate of 1.43 million, according to research firm Briefing.com. That’s just above August’s 1.42 million. Building permits are seen coming in at 1.51 million, again just a touch beyond the 1.48 million in August. Record low mortgage rates and people moving out of cities during the pandemic both formed tailwinds for housing last summer, so we’ll see if it held up as fall approached.

MOMENTUM LOST
Friday’s early exuberance ended with a whimper as the S&P 500 Index barely finished higher and the NASDAQ Composite surrendered gains to close lower. That doesn’t necessarily give things much momentum headed into the new week. Neither does rising worry about coronavirus as caseloads grow in Europe and the U.S. Concerns about this could potentially cap any big rally chances this week.

The last minute pullback Friday in Tech stocks, which make up a big chunk of the COMP, put a cloud over what might have been a nice finish to a rough week. There wasn’t much in the way of news that could explain the late weakness, so some analysts attributed it to options expiration.

A slide in the SPX late Friday to below 3500 might have triggered some technical selling, according to research firm Briefing.com. Obviously, that’s a psychological level for the index and it’s had trouble staying above it on a few attempts now (see chart below).

S&P 500 Candlestick Chart.

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