Table of Contents
- 1 Here’s what Wall Street’s saying:
- 2 More on Politics and Your Portfolio:
Stocks rose Thursday in a mixed market from a risk sentiment perspective. Economic momentum is on investors’ side, while election volatility is keeping interest in stocks at bay.
The S&P 500 rose 0.53%, partially powered by the gain on the tech components of the Nasdaq, which rose 1.42%. The 10-Year treasury yield was flat at 0.68%, after having risen. Inflation expectations of late have improved somewhat. That favors cyclical stocks, many of which are capture in the Vanguard S&P 500 Value ETF (VOOV) – Get Report, which is up more than 3% in the past few days, after participating in September’s broad market sell-off.
On tech, FAANG earnings growth for the near-term is still premium compared to value stocks and if investors are willing to pay current multiples, these stocks can still outperform at least in the near-term and bring major indices higher with their outsized market caps.
Jobless claims came in at 737,000 for the past week, a meaningful drop-off from last week’s report of 773,000. This, coupled with other solid economic data points of late, points towards the continuation of the V-shaped economic and earnings recovery. Large cap consumer discretionary stocks rose, but other cyclical sectors like oil manufacturing were flat-to-down. Banks rose a few tenths of a percentage point. The yield curve is not expanding and loan demand has been weak of late, but banks are reducing their customer deposit rates as interest income is pressured, thereby upholding profitability.
Many on What Street say election risks are getting in the way of stock price momentum. Sure, corporate and individual taxes may rise with a Biden Presidency, but many are digesting that, absent a strong majority of Democrats in Congress rather than a slim one, policy changes cannot be so drastic, though they may be incremental. Plus, concerns of ballot-counting is adding to the expectation of near-term volatility.
One signal of equity market optimism, though, is that smaller, debt-laden, economically-sensitive consumer discretionary stocks had quite a day Thursday. Kohl’s (KSS) – Get Report, Nordstrom (JWN) – Get Report and Macy’s (M) – Get Report rose 5.02%, 5.62% and 2.54%, respectively. Earnings momentum carries these companies further away from financial distress and a V-shaped recovery could bring these stocks back to all-time highs relatively soon, though they’ll have to address their currently risky capital structures.
Here’s what Wall Street’s saying:
Ken Berman, Strategist, Gorilla Trades:
“U.S. stocks continue to be much stronger than their overseas peers, as today’s economic data-dump confirmed that the recovery remains on track.”
Steven Ricchiuto, Chief U.S. Economist, Mizuho Securities:
“Even without a phase IV package, our credit quality-motivated macro forecast suggests the domestic economy is still well-positioned to avoid deflation. Our macro projections suggest a very long, even if shallow, recovery/expansion will gradually tighten labor market conditions and keep the economy from sliding into deflation. Our 2.0% to 2.5% GDP forecast suggests the economy will grow at a rate just above the CBO’s estimate of the economy’s underlying growth potential, ensuring a steady decline in the jobless rate. Additionally, our analysis suggests that a steady expansion in the Fed’s System Open Market Account, not a sustained period of near-zero short rates, will stave off domestic deflation pressures long enough for the labor market to see a bounce back in service spending by households. Should a phase IV stimulus of at least $1-1.5 trillion become law, a push back through 92 would be that much easier in the weeks ahead.”
Shawn Cruz, Senior Market Strategist, TD Ameritrade to TheStreet:
“The only thing that’s certain in this election is that there is going to be a lot of uncertainty. Looking at markets trying to price in any sort of an outcome of this election, to me, is way to early in the game. Years like this year where you have very stark policy agendas being put on the table and then an even more uncertain outcome, it’s going to be very difficult for markets to really start pricing anything in until November.”
Thomas McLoughlin, Head, Fixed Income, Americas, UBS:
“The prospect of protracted litigation stemming from a delay in the vote count may increase the level of uncertainty for market participants as we approach election day.”