Stock Market Update: Friday, Oct. 23, 2020

Stocks remained choppy as the potential for additional fiscal stimulus continued to weigh on Wall Street — and more in Friday’s stock market update. Treasury Secretary Steven Mnuchin said Republicans have offered compromises but there’s still significant areas they are working through with House Speaker Nancy Pelosi.

Meanwhile, President Donald Trump also said Friday he does not want the aid deal to bail out Democratic states. The major indexes fell to their intraday lows following his remarks but closed the session mostly higher, with the Dow and S&P 500 snapping three-week winning streaks. The Nasdaq had its first weekly loss in five weeks despite the higher close. 

Stock Market Update 

The Russell 2000 rose 0.6% with the intraday peak hitting 1,641.

The Nasdaq advanced 0.4% after closing on the session high of 11,548.

The S&P 500 climbed 0.3% following the late-day push to 3,466.

The Dow dipped 0.1% after testing a midday low of 28,149.

Communication Services and Consumer Discretionary were sector standouts with gains of 0.9%. Energy and Technology were the only sectors that showed weakness after falling 0.5% and 0.1%, respectively.

Stock Market Movers

Shares of Boston Beer Co. (NYSE: SAM) jumped nearly 19% following solid earnings. The company reported a third-quarter profit of $6.51 a share versus forecasts of $4.50. Revenue checked in at $492.8 million versus consensus of $520.87 million. Earnings grew 78.4% from the year-ago quarter primarily due to increased revenue that was driven by shipment growth of 30.5%. 

Stock Market Outlook 

The third-quarter earnings season has gotten off to a good start, with the Financial sector coming out with a notably improved profitability picture relative to what was shown in the first half of the year. The stock market appears unwilling to credit these companies for their results, but positive earnings from the perennially out-of-favor banks nevertheless confirms the earnings recovery theme.

Total earnings for Financial sector companies are down 8.2% from the same period last year on 0.8% higher revenues, with 87.5% topping EPS estimates and 77.6% beating revenue estimates.

Wall Street will look for this good revisions trend to gain pace in the upcoming week as we enter the heart of the third-quarter earnings season, highlighted by the Tech sector. Looking at Q3 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings for the quarter are now expected to be down 18.9% from the same period last year on 2.4% lower revenues. 

The decline rate has fallen as companies have come out with better-than-expected results. However, a trading range could continue as the overall stock market seems more focused on the results of the upcoming presidential election. 

Global Economy

European markets settled higher despite nagging worries about the economic impact of surging coronavirus cases.

The Belgium20 surged 1.4% and UK’s FTSE 100 jumped 1.3%. France’s CAC 40 rallied 1.2% and Germany’s DAX 30 rose 0.8%. The Stoxx 600 gained 0.6%. 

Asian markets closed mixed.

Hong Kong’s Hang Seng rose 0.5% while Japan’s Nikkei and South Korea’s Kospi added 0.2%. China’s Shanghai sank 1% and Australia’s S&P/ASX 200 slipped 0.1%. 

U.S. Economy

Flash PMIs showed continued expansion and posted their best levels since early 2019. The manufacturing PMI ticked up 0.1 point to 53.3 in October, while the preliminary services index climbed 1.4 points to 56 in October.

Baker Hughes reported the U.S. rig count was up five from last week to 287 with oil rigs up six to 211, gas rigs down 1 to 73, and miscellaneous rigs unchanged at three. The U.S. Rig Count is down 543 rigs from last year’s 830, with oil rigs down 485, gas rigs down 60 and miscellaneous rigs up two. The U.S. Offshore Rig Count is down 1 to 13, down 8 year-over-year.

Stock Market Sentiment

The iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT) snapped a six session losing streak following the intraday bounce to $158.21. Fresh and lower resistance at $158-$158.50 was recovered with more important hurdles at $159.50-$160 and the 200-day moving average.

Support is at $157-$156.50 with backup help at $155.50-$155 and levels from early June.

Volatility Index

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) fell for the third straight session with the intraday low tapping 27.28. Current and upper support at 27.50-27 was reclaimed. A close below the latter would signal another retest towards 26.50-26 and the 50-day moving average. 

Lowered resistance is at 28.50-29 followed by 30.50-31 and the 200-day moving average.

Stock Market Analysis

The iShares Russell Growth 1000 ETF (NYSEArca: IWF) rebounded to snap a two-session slide with the late-day high reaching $222.68. Near-term and lower resistance at $222.50-$223 was cleared and held. A move above the latter would indicate further strength towards $223.50-$224.

Support is at $221-$220.50. A close below the $220 level would be a renewed bearish signal for additional weakness towards $219-$218.50 and the 50-day moving average.

RSI has flatlined with lower resistance at 55-60 holding. A move above the latter would suggest additional strength towards 65-70. Key support is at 50 and a level that has been holding since late September.

Sector

The Technology Select Sector SPDR Fund (NYSE: XLK) extended its losing streak to three straight and was down for the eighth time in nine sessions following the pullback to $117.45. Current and support at $117.50-$117 was breached but held. A close below the latter and the 50-day moving average would signal additional weakness towards $116.50-$116.

Lowered resistance is at $118.50-$119 followed by $119.50-$120.

RSI is showing signs of rolling over with key support at 50 holding. A fall below this level reopens downside risk towards 45-40. Resistance is at 55-60.

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