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October 16th, 2020

-Darren Leavitt, CFA

US Market averages were little changed for the week.  The beginning of 3rd quarter earnings started with ho-hum results from the financials, some transports also missed the mark, and a high flying cloud computing company, Fastly, fell well short of expectations.  Another failed attempt to negotiate a stimulus package was disappointing, and it now appears as though further negotiations will be is pushed back until after the Presidential election.  News that Johnson and Johnson and Eli Lilly had halted their Covid-19 vaccine trials further dampened investor sentiment.  Economic data for the week was mixed.

For the week, the S&P 500 gained 0.2%, the Dow inched higher by 0.1%, technology outperformed, and help send the NASDAQ higher by 0.8%, and the Russell 2000 gave up 0.2%.  US Treasuries advanced slightly on the week, sending yields lower.  The 2-year yield lost one basis point to close at 0.15%, while the 10-year yield lost four basis points to close at 0.74%.  Gold prices fell 1.3% or $25.60 to close at $1906.50 an Oz. Oil was little changed on the week; WTI closed at $40.85 a barrel.  There were no changes to our models.

3rd quarter earnings started in earnest last week with Citibank, JP Morgan, and Goldman Sachs reporting results.  The results did not impress investors, and perhaps more important was the cautious tone on the economy that management conveyed on their respective calls.  Earnings out of KSU and JB hunt missed the mark and caused transports to sell-off.  An inline result out of highflying cloud company Fastly coupled with management lowering estimates for the next quarter prompted some selling in the Tech sector.  We are just getting started on earnings, so results, management commentary, and guidance will continue to influence the markets over the next several weeks.

The 2nd tranche of coronavirus stimulus looks less and less likely before the election.  Both sides continue to be far apart on their packages, and now, it appears the GOP is at odds with the administration’s most recent proposals.  Market participants have been keenly focused on the negotiations and hopeful that a deal could get done; investor enthusiasm could be curbed until an agreement is forged.

Gyrations in progress for a vaccine are a certainty and will likely continue to influence markets.  Midweek J&J and Eli Lilly announced that they would halt some of their trials due to some adverse effects.  The news comes nearly a month after Astra Zeneca paused one of their trials only to see it restart after a couple of weeks.  In contrast, Pfizer announced late in the week that it may seek emergency FDA authorization for their Covid-19 vaccine as soon as the end of November.

Economic data for the week was mixed.  High-Frequency initial claims data continued to show a distressed employment market.  Data for the week showed 898k new claims for unemployment insurance above the expected 830k.  Continuing claims showed some progress coming in at 10.18 million versus last week’s 11.18 million.  Industrial production fell well short of the 0.6 estimate coming in at -0.6.  On the bright side, September Retail sales came in much better than expected at 1.9 versus estimates of 0.6.  The report showed strong spending within many consumer discretionary components, which is certainly encouraging.

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