Large-Cap Stocks Retreat On The Week As Wall Street Loses Faith In Another Stimulus Package Being Passed Before The Election
• In a reversal from last week, the major large-cap indices retreated while the smaller-caps advanced on the week
• The larger-tech names drove the week’s performance, pushing NASDAQ to a decline of 1.1%, and the S&P 500 and the DJIA to both lose less than 1%, as the DJIA is now once again in the red YTD
• The smaller-cap Russell 2000 moved up on the week, with a gain of 0.4%, as it inches its way toward a positive YTD number
• Another week went by without any movement on the next COVID-stimulus package from Congress and Wall Street seems almost resigned to nothing happening until after the election
• Of the S&P 500 sectors, Communication Services jumped 2.1% and the Utilities and Financials sectors advanced 1.2% and 1.0%, respectively
• Volatility, as measured by the VIX, steadily increased until mid-week, but then it retreated to end the week just a smidge lower than where it started, coming to rest at 27.32
• From Friday of last week to Friday of this week, WTI Crude dropped about $1/barrel, entering the weekend at just under $40/barrel
• The 10-year Treasury rose 10 basis points to 0.84, its highest level since June, partly on inflation expectations
• The U.S. Dollar Index declined 1.0%
Large-Cap Stocks Retreat While the SmallerCaps Advance
The smaller-cap stocks outperformed the larger-caps, but not by a whole lot, as the small-cap Russell 2000 added 0.4%, compared to losses of around 1% for the DJIA, NASDAQ and S&P 500. On the week, the dominant news was on what didn’t happen – namely, an announcement of another round of stimulus out of Washington. As the week wore on, Wall Street seemed somewhat resigned to accepting that another stimulus bill wouldn’t be passed until after the election, and this seemed to be confirmed in comments from both sides of the aisle late on Friday.
Left with no stimulus bill to digest, investors instead examined corporate earnings and more positive housing data and weekly jobless claims.
On the earnings front, investors saw close to 100 companies reporting results and the results were varied. Netflix shares were hammered on Wednesday when they reported new subscribers well below expectations; shares of Intel dropped 10% on Friday after disappointing results; and shares of SNAP jumped more than 50% in three days of trading after the social media company reported some very positive and unexpected results.
Interestingly, research firm FactSet has suggested that overall earnings for the S&P 500 companies was expected to decline by 16.5% compared to the same quarter this time last year, but so far 84% of companies have actually beaten earnings estimates.
Weekly jobless have recently been coming in worse than expected, but this week the drop to 787,000 was more in line with expectations and the lowest level since March. Further, continuing claims also fell dramatically, from 9.4 million to 8.4 million.
Monthly Housing Starts Leap Again
The U.S. Census Bureau and the U.S. Department of Housing and Urban Development reported the following on Tuesday:
• Building Permits: Privately-owned housing units authorized by building permits in September were up 5.2% above the August rate and 8.1% above the September 2019 rate
• Housing Starts: Privately-owned housing starts in September were up 1.9% above the August rate and 11.1% above the September 2019 rate
• Housing Completions: Privately-owned housing completions in September were up 15.3% above the revised August rate and 25.8% above the September 2019 rate
• Single-family starts showed continued growth in September as overall housing production increased to a seasonally adjusted annual rate of 1.42 million units
• The September reading of 1.42 million starts is the number of housing units builders would begin if they kept this pace for the next 12 months Within this overall number, single-family starts increased 8.5% to 1.11 million, which is the highest pace of single-family starts since June 2007.
On a regional and year-to-date basis (January through September of 2020 compared to that same time frame a year ago), the NAHB reported that combined single-family and multifamily starts were:
• 11.0% higher in the Midwest;
• 5.7% higher in the South;
• 4.5% higher in the West; and
• 1.4% lower in the Northeast.
Earnings, Earnings, Earnings
Research firm FactSet reported that the number of companies beating earnings estimates for the third quarter are at record levels, with 84% bearing earnings estimates – the highest level since 2008. That’s the good news. The bad news as written by FactSet on Friday is this:
“Despite the increase in earnings, the index is still reporting the second largest year-over-year decline in earnings since Q2 2009, mainly due to the negative impact of COVID-19 on numerous industries within the index.”
The good news from FactSet is this: “…the S&P 500 is projected to report year-over-year earnings growth starting in Q1 2021.”
Next week promises to be another very busy week on the earnings front.
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Sources: cmegroup.com;census.gov; factset.com; fidelity.com; msci.com; Nasdaq.com; wsj.com; Morningstar.com;