Stocks start the week on a positive note. The S&P 500 Index is set to open higher this morning to kick off August, a month that historically has been one of its weakest, after a strong 5.5% gain in July. Today, market participants will focus on earnings, rising US-China tensions, manufacturing data, merger news, and stimulus talks in DC. European markets are solidly higher in midday trading. Asian markets were mixed: China’s Shanghai Composite rose 1.8% on strong manufacturing data, Japan’s Nikkei jumped 2.2%, and Hong Kong’s Hang Seng edged 0.6% lower.
Too low of a bar. Second quarter S&P 500 earnings are tracking to a 36% year-over-year decline, a solid 9 percentage points above estimates when earnings season began. Earnings are up 6 to 7 points over the past week and jumped 3% on Friday alone. The earnings beat rate (82%) and average positive surprise (22%) are both well above historical averages. Forward 12 months’ estimates have risen impressively by nearly 2% in July.
Week ahead. This week will be bookended by two influential economic reports: Monday’s Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI) for manufacturing and Friday’s monthly jobs report. In between, more than 100 S&P 500 companies are scheduled to report earnings. Other monthly data this week includes construction spending, durable goods orders, and auto sales, while weekly jobless claims will be closely scrutinized after last week’s increase.
Goodbye July, Hello August. Stocks lived up to their reputation in July, as the S&P 500 gained 5.5% for its best July in 10 years. July had been one of the best months of the year over the past decade, and it played out well once again. Now August is here, and this month has been the worst performing over the past decade. We discuss the potential for a late summer pullback in this week’s Weekly Market Commentary, available later today.
Start the clock. We are officially three months away from the US presidential election, and one of the most accurate indicators of who might win has started. If the S&P 500 was higher the three months prior to the election, the incumbent party historically has tended to win, while if stocks were lower, the incumbent party has lost. Stocks have been right every year since 1984 and 87% of the time since 1928. We discuss this in more detail later today on the LPL Research blog.
COVID-19 news. Roughly 47,500 new cases were reported in the United States on Sunday, down 13.5% from Sunday last week, while the seven-day average fell 6% week over week (source: Johns Hopkins). The United Kingdom is considering locking down London and keeping its more vulnerable population at home. Eli Lilly will begin testing its COVID-19 antibody drug in nursing homes. Negotiations on the next stimulus package continue in Washington, DC, this week.
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