Stocks fell Tuesday, even as the House proposed a surprisingly large and wide-ranging bill.
The S&P 500 fell 0.48%, lead by economically-sensitive stocks, while all sectors fell. The 10-Year Treasury yield, already below the rate of expected inflation, fell to 0.65% from 0.66%. The price of crude oil fell 3.87% to $39 a barrel.
The house proposed a $2.2 trillion fiscal stimulus bill, which, to the surprise of many in the market, includes $600 of weekly benefits for the many use,owed Americans and more than $1,000 to each household. It also includes $120 billion of relief for the restaurant industry.
Stocks didn’t exactly take kindly, as the bill is long overdue from an economic standpoint and many small businesses and households have been moving closer to insolvency. No matter how high consumer confidence was for September — and the reading was 100 versus estimates of 89 — a slowing recovery in employment and consumer will undermine earnings estimates for the next year. That will pressure stocks, although it already has, with the S&P 500 down more than 6.5% since September, with broad sectors participation.
Also, the future of fiscal spending is in question. Even if Democrats control Congress, they likely won’t control it by a wide margin, leaving only a few centrist Democrats to potential advocate against heavy spending to fight the economic risks of the virus, which is ticking up again in September.
Investors will have to weigh, again, the negatives of potential lockdowns against the positives of aggressive stimulus.
Also, the uncertainty caused by questions over mail-in ballot counting, many on Wall Street say, isn’t helping market sentiment.
Here's what Wall Street's saying:
Steven Ricchiuto, Chief U.S. Economist, Mizuho Securities:
"The correction phase should continue for a few more weeks. There are three very good reasons why the recent consolidation phase is likely to continue for several more weeks. First, market participants are uncertain not only about the outcome of the election, but also the mechanics of the voting process. There are clearly deep divides in the country, as evidenced by the social unrest over the past few months, and how these contrasting views of the direction of the country manifest themselves in the election is a very tough call. Second, the incoming economic data strongly suggest that the Q3 rebound in economic activity will be at least half as large as the 30.8% second quarter collapse. This rebound is clearly signaled by this morning’s data releases, which show that although a deteriorating trade deficit will be as drag on economic activity, stock rebuilding will be a powerful offset. Third, our tracking of bottoms-up earnings revisions continue to improve, but at a rate consistent with a sideways market rather than an extended upturn.”
Market Haefele, Chief Investment Officer, Global Wealth Management, UBS:
"Volatility remains relatively high, with the VIX index edging higher to 26.8 despite the rise in equities. We expect near-term volatility to persist as investors balance the prospects for further fiscal stimulus against continued US political uncertainty, which has been accentuated by President Donald Trump’s announcement of Judge Amy Coney Barrett as his nominee for the Supreme Court. Investors also need to balance the continued rise in coronavirus infections and the reimposition of localized restrictions in a number of European countries against the potential for sustainable mobility gains enabled by a vaccine.”
Tony Dwyer, Chief Market Strategist, Canaccord Genuity:
“Yesterday’s [Monday’s] broad market rally on top of Friday’s side reversal reinforces our view that we passed our first speed bump last week. With the S&P 500 already a few percent of the lows, is it still a good time to add exposure, given our favorable fundamental backdrop of historic excess liquidity and synchronized global economic recovery? History suggests it may be.”
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