Before The Bell
The name of the game on Wall Street these days is volatility. The major equity averages have been prone to swift, and at many times pronounced movements since the early trading days of September. Behind the recent moves has been uncertainty on a number of issues, a backdrop that is not viewed kindly by investors and can often lead to some notable selling. Among the unanswered questions that are unnerving Wall Street in recent weeks are the upcoming elections on November 3rd, which may possibly have a major impact on the economy and stock market, the inability of leaders on Capitol Hill to reach an agreement on an economic stimulus package to help individuals and businesses hurt by the coronavirus pandemic, worries about an uptick in COVID-19 cases in many states, and lastly the news that President Trump tested positive for the virus. Against this backdrop, it has been hard for the major indexes to make much positive headway recently. On that note …
The selling picked up on Friday, and cut into some of the weekly gains the major averages were holding coming into the final trading session. The market was rattled by news that President Trump had tested positive for the coronavirus, still no signs of any agreement being close on a stimulus package, and what was a mixed, at best, report on the U.S. labor market. For the session, the Dow Jones Industrial Average, the S&P 500 Index, and the NASDAQ Composite were down 134, 32, and 251 points, respectively, which pared the weekly gains to 1.9% for the Dow 30 and 1.5% for the latter two indexes. The most severe selling on Friday was among the economically sensitive sectors, with the technology and consumer discretionary stocks under heavy pressure. The lackluster report on employment drove some movement out of riskier assets and into fixed-income securities. The technology space, where valuations are still rather high, drew the ire of investors.
As noted, the report on employment and unemployment was mixed. Investors did not like that the nation added fewer jobs than expected in September. Specifically, nonfarm payrolls increased by 661,000 positions, which fell short of the consensus expectation of around 800,000. On the bright side, the unemployment rate did fall to 7.9% and hourly wages did move up, both of which are positive signs. The report from the Department of Labor reversed some of the positive tidings earlier in the week fueled by a strong report on consumer confidence, a jump in private sector job creation and a modest rise in manufacturing activity. Investors should note than an updated review of a number of the largest manufacturing companies, including new Dow-30 component Honeywell (HON), can be found this morning in Issue 9 of The Value Line Investment Survey on valueline.com.
So what should investors expect in the week ahead? Given all of the aforementioned unanswered questions, we would expect the volatility in the market to persist. Trading will likely be driven by economic stimulus news or lack thereof from Capitol Hill, new data on COVID-19 cases, and updates on how President Trump is recovering from the coronavirus. And with third-quarter earnings season still a week away from commencing, with the latest data from JPMorgan Chase (JPM) on October 13th, the investment community will continue to keep close tabs on data from the business beat. This week, we will get reports on the trade deficit, initial weekly jobless claims, and the minutes from the last Federal Reserve monetary policy meeting. And a half hour into today’s session, we will get the latest release on nonmanufacturing activity from the Institute for Supply Management. Today’s services data may lead to some more scrutiny of the consumer discretionary stocks, which were under selling pressure on Friday following the labor market data.
Given all of the uncertainty in the global stock market these days, we continue to recommend that investors look at the stock’s ranked 1 (Highest) and 2 (Above Average) for Safety by Value Line. Historically, this group, which consists of a number of blue chip names, tends to provide the most stability when turbulence in the equity market is higher than normal. An updated Index of stock rankings for Value Line subscribers can be found this morning on our website.
Before the market’s open, the equity futures are presaging a positive start for trading stateside. Overnight, the main indexes in Asia finished higher, while the major European bourses are in the green as trading moves into the second half of the session on the Continent. Lowering some of the anxiety in the market this morning are reports from the White House medical staff that the President is recovering nicely from the coronavirus and may be released today from his stay at the Walter Reed National Military Medical Center in Washington D.C. There was some nervousness among investors when prior news surfaced that President Trump was treated with the steroid dexamethasone, which is typically used for more severe cases of COVID-19. Shares of Regeneron Pharmaceuticals (REGN), which produced an experimental antibody drug used in the treatment, are pointing higher in pre-market action. Stay tuned.
– William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
