S&P 500 Index opened lower. The market rotation toward cyclical value is taking a pause as the NASDAQ opened slightly higher.
- Jobless claims and consumer inflation highlight the economic calendar.
- European stocks are down nearly 1% overall in midday trading.
- Asian markets closed mostly lower though Japan’s Nikkei bucked the trend and posted a solid gain.
Weak open as COVID-19 battle continues. Stocks are taking a pause this morning amid several opposing forces. A COVID-19 vaccine is coming but new cases are surging. We have some election clarity, but also contested results and an undecided Senate. Gridlock is good if we get it—no big tax increases—but it would mean less stimulus.
Jobless claims continue their decline.
- Initial jobless claims fell to 709,000, below Bloomberg consensus forecasts of 731,000, and lower than the prior week’s 751,000 (source: US Department of Labor).
- Continuing claims also fell, declining to 6.79 million and below the Bloomberg consensus estimate for 6.82 million.
- The continued improvement in jobless claims comes as a welcome development amid rising COVID-19 cases, showing the resiliency of the labor market so far.
Inflation pressure moderating. The core Consumer Price Index was flat month over month, missing estimates for 0.2% growth in prices. Year-over-year growth for the index was a modest 1.6%, indicating the path forward to meet the Federal Reserve’s 2% target for inflation may take some time despite the rebound in the broader economy.
Earnings rebound picking up steam. Third quarter earnings season has been outstanding relative to expectations. S&P 500 earnings are tracking to a 7.5% year-over-year decline, more than 14 percentage points above expectations when earnings season began. Today’s LPL Research blog gives some earnings season highlights and discusses what the strong results may mean for the 2021 earnings outlook.
Upside earnings surprises not just a US phenomenon. Developed international and emerging market (EM) earnings also have far surpassed consensus estimates based on the broad MSCI indexes (source: FactSet). EM earnings are actually tracking toward a year-over-year increase in the third quarter, though only the United States, based on the S&P 500, has seen fourth quarter estimates revised higher.
Bogey or hole-in-one? We take a light-hearted look at the 2020 Masters Golf tournament starting today in Augusta, Georgia, and what the winner could tell us about the following year’s stock market returns.
Read LPL Research blog https://lplresearch.com/
Technical update. Momentum stocks rallied back on Wednesday, leading the S&P 500 to a 0.8% gain, while cyclical value stocks lagged. The S&P 500 fell just 8 points short of its record closing high at 3580, but it’s moving lower in early trading this morning. The index has traded in a 12% range from 3200–3580 since mid-July, but the technical expectation remains an upside breakout given the primary bullish trend.
COVID-19 news. COVID-19 cases in the United States rose 40% week over week on Wednesday to another record high, pushing the seven-day average up to 125,000, 40% above the prior week (source: COVID Tracking Project). The number of Americans hospitalized jumped to over 65,000, surpassing the April high and increasingly straining the hospital system. More restrictions are likely coming. Moderna said its vaccine trial reached a key target for analyzing its effectiveness.
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