Stock Market Update: Tuesday, September 22, 2020

Wall Street opened higher but turned choppy ahead of testimony from Federal Reserve Chair Jerome Powell and U.S. Treasury Secretary Steve Mnuchin — and more in Tuesday’s stock market update.

Both expressed cautious optimism that the economy is rebounding from the pandemic-induced recession with federal support, but said more help from the government is needed.

Mnuchin also said he was ready to resume stimulus negotiations and that the administration is willing to support stand-alone legislation to boost support through the Paycheck Protection Program, which benefited small businesses. Stock market strength returned afterward, with the major indexes closing higher despite the number of U.S. coronavirus deaths topping the 200,000 mark.

Stock Market Update

The Nasdaq showed strength for the first time in  five sessions after rallying 1.7%, reaching an intraday peak of 10,979.

The S&P 500 rose 1.1% to end a four session losing streak after testing a intraday low of 3,320.

The Russell 2000 rebounded 0.8%, with the session high tapping 1,497.

The Dow climbed 0.5% to snap a three session losing streak, with the intraday high reaching 27,333.

Consumer Discretionary and Communications Services showed the most sector strength, with gains of 2.1% and 1.9%, respectively. Energy and Financials were the weakest sectors after giving back 1% and 0.8%, respectively.

Stock Market Movers

GameStop Corp. (Nasdaq: GME) surged 20% to a fresh 52-week peak after RC Ventures disclosed it had increased its stake in the company to roughly 10%, compared to 9% reported previously.

GameStop could be in a position for a big comeback as the next gaming consoles come in the fourth quarter of this year. The new console launches could activate a number of catalysts for GameStop that include new hardware sales and needed trade-in inventory. New software sales, high-margin pre-owned sales and sales of peripherals and accessories could also increase loyalty memberships.

Carvana Corp. (NYSE: CVNA) zoomed 30% after announcing it expects to achieve company records in performance across several metrics in the third quarter, including total revenue.

Stock Market Outlook

Tuesday’s stock market gains were slightly encouraging, but all of the major indexes remain trapped between their 50-day and 200-day moving averages. The 50-day moving averages remain in a longer-term uptrend, while the 200-day moving averages have flatlined. A recovery of the latter would be bullish signals for additional strength and a retest toward prior highs.

Meanwhile, volatility continues to be a key indicator after closing lower while holding below its 200-day moving average.

Perhaps the biggest concern later this week is the possibility of the Food and Drug Administration getting tougher on a coronavirus vaccine. Late-day news from a Washington D.C. newspaper says the FDA is seeking to increase transparency and public trust as it approaches the decision of whether a prospective COVID-19 vaccine is safe and effective.

The update could outline tough, new standards for an emergency authorization of a coronavirus vaccine. The new rules will likely make it hard for any vaccine to be approved by Election Day. As a result, the Healthcare and Drug sector could see heightened volatility once the announcement is made.

Global Economy

European markets were mixed following dovish comments from European Central Bank President Christine Lagarde that fueled rate cut expectations.

Germany’s DAX 30 and UK’s FTSE 100 added 0.4% while the Stoxx 600 edged up 0.2%. France’s CAC 40 and the Belgium20 declined 0.4%.

Asian markets settled lower with Japan’s Nikkei closed for a holiday.

South Korea’s Kospi plummeted 2.4% and China’s Shanghai sank 1.3%. Hong Kong’s Hang Seng dropped 1% and Australia’s S&P/ASX 200 fell 0.7%.

U.S. Economy

Existing Home Sales rose 2.4% to 6 million in August, better than expectations of 5,965,000 following July’s 24.7% surge to 5,860,000. Sales rose in all four regions, led by the Northeast. August single-family sales rose another 1.7% to 5,370,000 versus gains of 23.9% in July to 5,280,000. Condo-co-op sales jumped 8.6% to 630,000 after climbing 31.8% to 580,000 in July.

Stock Market Sentiment

Powell reiterated the sentiment from the FOMC statement that the economy has picked up from its depressed second-quarter level, and many economic indicators have shown marked improvement. He added both employment and overall economic activity, however, remain well below their pre-pandemic levels.

Powell pledged the Fed will do what it can for as long as it takes. He said there was only so much in terms of lending it could do, and added direct fiscal support may be needed.

The iShares 20+ Year Treasury Bond ETF (Nasdaq: TLT) zigzagged for the fourth straight session following the intraday fade to $163.87. Near-term and upper support at $164-$163.50 was breached but held. A close below the latter reopens further weakness toward $162.50-$162.

Lowered resistance is at $164.50-$165, with more important recovery hurdles at $165.50-$166 and the 50-day moving average.

Volatility Index

The iPath S&P Vix Short-Term Futures (NYSEArca: VIX) flipped-flopped for the third straight session following the afternoon pullback to 26.48. Current and upper support at 26.50-26 was recovered. A close below the latter would indicate a retest towards 25.50-25 and the 50-day moving average.

Resistance remains at 29-29.50 and the 200-day moving average followed by 31-31.50.

Stock Market Analysis

The SPDR Dow Jones Industrial Average ETF (NYSE: DIA) rebounded after reaching an intraday peak of $273.24. New and lower resistance at $273-$273.50 was breached but held. A move above the latter would indicate a retest toward $274-$274.50 and the 50-day moving average.

Current support is at $270-$269.50, with backup help at $267.50-$267 and Monday’s low of $267.05.

RSI is showing signs of strengthening after holding support at 40. A close below this level would signal additional weakness toward 35-30 and levels from late March. Resistance is at 45-50.

Sector

The Utilities Select Spider Fund (NYSE: XLU) snapped a four-session slide after trading to a morning high of $58.41. Near-term and lower resistance at $58-$58.50 was cleared and held. A close above the latter would be a slightly bullish signal for a retest toward $59-$59.50 and the 50- and 200-day moving averages.

Current support is at $57.50-$57. A move below the latter and Monday’s low at $56.91 would indicate a further backtest toward $56-$55.50 and levels from early July.

RSI is trying to curl higher, with lower resistance at 45-50 holding. A move above the latter would indicate additional strength toward 55-60. Support is at 40-35.

Check back for the most important news and numbers each day after the closing bell here in the WealthPress stock market update.