Stocks were virtually flat Friday—and still down for the week—after a mixed week marked by fiscal stimulus negotiations, heightened election uncertainty and a slew of corporate earnings results as investors continue to price in a Biden election victory following the second and final U.S. presidential debate.
At the close, the Dow Jones Industrial Average had fallen .1%, and the S&P 500 climbed 0.35%, while the tech-heavy Nasdaq gained about 0.4%.
Among stocks making the biggest moves Friday morning were Intel–which was down more than 10% after a Bank of America downgrade and third-quarter earnings that barely met expectations–and toy maker Mattel, which was surging 7% after beating Wall Street earnings expectations.
Yields on the ten-year Treasury Bond—a bellwether of investor confidence in the equities market—climbed for a seventh straight day to 0.863%, the highest level since early June.
The S&P 500 is still down about 1% this week after failing to recoup Monday losses; it’s up nearly 7% for the year, and Goldman estimates it could go up another 3 percentage points before year’s end.
With the second and final U.S. presidential debate now in the books before Election Day, markets are still pricing in a Biden win, says Nigel Green, the CEO of $10 billion financial advisory deVere Group, who adds that the evidence of such includes investors recently piling into renewables, industrials and other sectors that could benefit from a blue wave.
Global markets were also up slightly on Friday: As of the U.S. market open, the United Kingdom’s FTSE 100 and France’s CAC 40 were each up about 1.5%, while Japan’s Nikkei 225 ended the day up 0.2%.
“The last debate was certainly more civil than the previous encounter, but it didn’t add much more to what we already know about the candidates’ personal and policy differences; therefore, we can expect the markets to continue pricing-in a Biden win, something which has begun in earnest in recent weeks,” says Green. “Conventional wisdom suggests a Democratic win would be negative for markets due to higher taxes, more regulation and higher spending, amongst other things. But there’s nothing conventional this time around,” he said, adding that the massive stimulus of up to $3 trillion that could be pushed forward by Democrats in January would buoy markets and “have investors think about a broader-based economic recovery–rather than a narrower, tech-heavy one.”
What To Watch For
Amid what could be the height of preelection uncertainty, hundreds of companies are set to report earnings next week, including cloud firm Twilio on Monday, biotechs Eli Lilly, Merck and Pfizer on Tuesday, Ford and Boeing on Wednesday and a slew of big tech firms—including Alphabet, Amazon and Twitter—on Thursday.
What’s one thing propping up earnings this season? Spending cash. S&P 500 cash spending “remained resilient during the first half of the year despite the pandemic recession,” Goldman Sachs said in a research note yesterday. Despite the largest decline in economic activity during the postwar period and a 24% decline in S&P 500 earnings per share in the first half of the year, “the continued spending by the largest technology firms and unprecedented policy support” led to just a 1% decline in S&P 500 cash use compared to the first half of 2019. Companies responded to the crisis by issuing debt and equity, Goldman added, noting that the surge in issuance has resulted in greater leverage–but also larger cash positions. The biggest cutbacks come from stock buybacks, which Goldman estimates will fall 30% this year, and capital expenditures, which are forecast to fall 8%.
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