Overview: U.S. stocks fell in volatile trade last week as stimulus talks stalled and virus cases spiked around the country. For the week, the S&P 500 index was down 0.5%, despite initial jobless claims reaching a low since March. International stocks fared better, with emerging markets (MSCI EM) leading the way, up 1.1%. In bonds, U.S. yields were higher, with the 10-year Treasury finishing the week at 0.84%, 16 basis points (0.16%) higher for the month.
This week: As we enter the final week before the elections, investors are continuing to hold out hope that a fiscal stimulus deal will get done. Economic data will be heavy, with home sales (Monday), durable goods (Tuesday) coming before we get both claims and gross domestic product (GDP) data on Thursday. Third-quarter GDP data is expected to be up 30.9% on an annualized basis, reversing the -31.4% reading for the second quarter. Finally, personal income and consumer spending data will be reported on Friday.
Earnings, Commentary from JP Morgan: The third-quarter earnings season is in full swing, and with ~20% of S&P 500 companies having reported, current estimates point to a 15.8% y/y decline in S&P 500 operating earnings per share (EPS), after a 33% decline in 2Q and a 49% decline in 1Q. Thus far, earnings have generally surprised to the upside, with more than 83% of companies beating expectations and 76% beating on revenues. Pandemic trends like stay-at-home arrangements and business closures continue to be reflected in results: Healthcare and Technology earnings are beating expectations due to robust activity in biotech/pharmaceuticals and software investment, while the banks are taking smaller loan loss provisions and seeing significant growth in trading and capital markets revenue. In contrast, energy companies continue to struggle with the collapse in oil demand, and consumer discretionary earnings remain under pressure as service businesses struggle to remain open. All things considered, the risk to 2020 earnings appears to be to the upside, as the combination of a manufacturing rebound, weaker U.S. dollar, and low-interest rates suggest profits should continue to recover. However, consensus estimates for 2021 operating EPS of $164, or +44% y/y feel too optimistic. Altogether, investors looking at equity markets today should strike a balance between secular growth and cyclicality, which will allow for participation if markets rally, but also protect on the downside if virus conditions worsen.
Weekly Returns and Data
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