Dow Plunges Another 200 Points After Worst Day Of October As Stimulus Hopes Fade Before Election Day

Topline

Stocks failed to make a comeback on Tuesday after posting their worst losses since early September on Monday, as a slew of new earnings data reveals that the pandemic is still ravaging industries, though the damage could be less than originally expected. On the broader economic front, Senate Majority Leader Mitch McConnell (R-Ky.) adjourned the Senate until November 9 after confirming new Supreme Court Justice Amy Coney Barrett on Monday evening, officially shutting the door on the lingering prospects that a stimulus package could be passed before the election.

Key Facts

The Dow Jones Industrial Average ended the day down 220 points, or 0.8%, after shedding 650 points on Monday, while the S&P 500 fell 0.3%, and the tech-heavy Nasdaq posted a 0.6% gain.

Yields on the ten-year Treasury Bond—a bellwether of investor confidence in the equities market—fell about 2% to 0.784% on Tuesday, nearly erasing a week of gains that had pushed the indicator to a four-month high.

A slew of firms reported earnings Tuesday morning that beat Wall Street expectations, including pharma giant Merck, medical supplies company 3M and construction equipment firm Caterpillar—though the pandemic’s toll was still clearly evident, with Caterpillar, for example, reporting that earnings fell 53% year over year as the coronavirus tanked demand.

Shares of Eli Lilly sank 7% after the Indiana pharma giant failed to meet Wall Street expectations, due in part to heightened costs as a result of its coronavirus vaccine development, which hadn’t yet been factored into projections; the pandemic also dinged rival Pfizer’s third-quarter revenue, which similarly came in below analyst forecasts. 

On the deal front, chip maker Advanced Micro Devices said Tuesday it’s buying rival Xilinx in an all-stock deal valued at $35 billion, boosting Xilinx shares roughly 8.5%.

Meanwhile, the U.K.’s FTSE 100 fell 1% on Tuesday, while France’s CAC 40 shed 1.8%, and Japan’s Nikkei 225 ended the day virtually flat.

Crucial Quote 

“Monday represented a final capitulation in the hope that a stimulus package would be passed before the election—hope that we’ve felt was misplaced for weeks as the political compromises required to pass such a large package would be difficult in normal circumstances, but, given the animosity of the two sides this year, seemed extremely unlikely to be made,” says Chris Zaccarelli, chief investment officer for Charlotte, North Carolina-based Independent Advisor Alliance. “It’s possible that the additional surge in coronavirus cases is giving investors some pause as it dents the reopening narrative that had been gathering steam over the past two months. . . . The Q3 GDP number on Thursday . . . may show a large enough bounce-back in economic activity to restore some confidence to markets and allow for the reopening narrative to reassert itself.”

Tangent

Charles Schwab said Monday evening it will lay off 1,000 workers as a result of its announced acquisition of brokerage giant TD Ameritrade, another blow to the already struggling U.S. labor market. About 787,000 people filed new state unemployment claims in the week ending October 17, according to the latest data available from the Labor Department. That was fewer than economists were expecting and the lowest level since March, but still incredibly high by historical standards.

What To Watch For

Amid what could be the height of preelection uncertainty, hundreds of companies–including about 39% of S&P 500 firms, per Bank of America—are set to report earnings this week, including Ford and Boeing on Wednesday and a slew of big tech firms—including Alphabet, Amazon and Twitter—on Thursday. 

Further Reading

Dow Tanks 650 Points As Coronavirus Cases Hit Another Record High Just Eight Days Before The Election (Forbes)

Stimulus Negotiations Stall Over Covid-19 Testing Plan As Cases Surge To Record Highs (Forbes)

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