Market Perspective for October 24, 2020

At the close of the trading week, the major market indexes held up well against expected volatility due to the presidential election. Despite a minor drop in the Dow, the other major indexes posted a day of gains and appear to be on track to continue positive trading trends over the coming week.

The drop in the Dow on Friday was largely due to a 10 percent dip in Intel (INTC) shares, which pushed the index down 0.95 percent for the week. Intel’s revenue reports were lower than expected, especially with respect to its data centers. Investors remain largely unmoved by the marginal dip based on a longer-term perspective on the relatively positive performance of the index over the past month. The fact that the recent drop in Intel shares had a direct effect on the marginal drop for the Dow also indicates that any temporary losses are predominantly contained to individual corporations.

The Nasdaq closed out Friday on a positive note with a 0.37 percent gain. The day’s trading gains pushed the Nasdaq to its third positive day out of the last four, bolstering confidence the index is tending upwards and poised to hold on to its recent gains. While the Nasdaq closed down 1.06 percent for the week, this was only the index’s first down trading week of the last five.

The S&P 500 followed a similar trading pattern as the Nasdaq for both the day and the week. The index rounded out the day with 0.34 percent in gains, which marks its third day of positive trading out of the last four. The S&P 500 dipped 0.53 percent for the week, which was only its first week of losses out of the last four.

The Russell 2000 ended the trading week up on Friday, returning 0.41 percent for the week.

Out of the 11 sectors, communications reflected the strongest gains for the week with 1.09 percent. SPDR Communication Services (XLC) advanced 2.14 percent this week. Shares of Facebook (FB) returned 7.09 percent. Alphabet (GOOGL) shrugged off a government anti-trust lawsuit and rose 4.14 percent.

Proctor & Gamble (PG) said continued lockdowns helped drive sales of home cleaning products. Analysts projected $1.01 per share in earnings, but the company delivered $1.16 per share. Tesla (TSLA) announced its fifth-consecutive quarter of positive earnings, and it earned 76 cents per share, higher than the 56-cent consensus forecast. Snap Inc. (SNAP), maker of the SnapChat app, saw its shares surge 55 percent after it reported a 1 cent profit per share versus the forecast 5-cent loss.

SPDR Financial (XLF) increased 1.02 percent this week. SPDR S&P Bank (KBE) jumped 6.43 percent and SPDR S&P Regional Banking (KRE) 8.04 percent.  All were lifted by rising interest rates. The 10-year Treasury yield touched 0.88 percent on Friday before settling at 0.84 percent, up 0.08 percent on the week.

Building permits, an indicator of future housing starts, increased to an annualized pace of 1.553 million. Existing home sales hit 6.54 million, also higher than anticipated. The National Association of Home Builders’ said its homebuilder confidence index hit a new all-time high of 85.

Flash manufacturing and service PMIs show the economy strengthened in October. The service PMI saw a jump from 54.6 to 56.0.

Initial claims for unemployment tumbled below 800,000 this week. Continuing claims continued their weekly decline of 1 million and hit 8.37 million for the week ending October 10th.

Coronavirus relief legislation remains the most anticipated development for maintaining relatively strong performances across the indexes in light of the economic consequences of the pandemic. In positive news for progress on the passage of a relief package, U.S. House Speaker Nancy Pelosi conformed this week that an agreement on the coronavirus stimulus proposals is still possible before the Nov. 3 presidential election. This aligns with the optimism of Treasury Secretary Steve Mnuchin, who reiterated that the White House remains committed to reaching an agreement on coronavirus relief funding as soon as possible.

From the comparatively stable or positive trading gains this week, the markets seem to be anticipating some form of pandemic stimulus package on the horizon, and any delay in the timing of an agreement on competing proposals does not seem to be getting in the way of relative gains. As such, the eventual implementation of a stimulus package, in whatever form it is ultimately passed by Congress and signed by the President, is expected to usher in a round of extremely positive market activity.

Even with the expected uncertainty in market activity surrounding the upcoming presidential election, the major market indexes are all holding exceptionally strong and have eased potential concerns that the flurry of election activity could put a damper on trading.


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