Stocks Waffle as Stimulus Hopes Wane

Fred Imbert and Yun Li of CNBC report the Dow closes 100 points higher, snaps 3-day losing streak on strong retail sales data:

The Dow Jones Industrial Average rose on Friday for its first daily gain in four sessions after the release of strong U.S. consumer data to end a volatile week.

The Dow closed 112.11 points higher, or 0.4%, at 28,606.31. The S&P 500 eked out a small gain, closing at 3,483.81 and the Nasdaq Composite ended the day down 0.4% at 11,671.56.

The major averages were broadly higher for most of the session. However, they gave up most of their gains in the final hour of trading as Big Tech shares sold off.

Both Dow and the S&P 500 notched their third straight weekly gain and the Nasdaq posted a four-week winning streak.

U.S. retail sales jumped 1.9% in September, easily topping a Dow Jones estimate of 0.7%, according to data released by the Commerce Department. Excluding autos, sales were up 1.5%. That’s also better than a 0.4% estimate.

“The economy continues to show pockets of strength, but those pockets need to widen,” said Quincy Krosby, chief market strategist at Prudential Financial. “For those who still have their jobs, the economy has been healing.”

“The question is, if initial unemployment claims continue to rise, will we continue to see retail sales surprising to the upside,” Krosby added.

Boeing shares led the Dow higher, rising 1.9% after Europe’s aviation regulator said Boeing’s 737 Max jet is safe to fly again. Meanwhile, Pfizer jumped 3.8% after the company said it would apply for emergency use of its coronavirus vaccine as soon as it reaches certain safety milestones that it expects to have in late November. Meanwhile, Amazon shares dipped 1.9% amid concerns over the sales from company’s Prime Day event.

Health care and utilities were the best-performing sector in the S&P 500, jumping nearly more than 1% each.

Wall Street was coming off its third consecutive daily decline amid uncertainty around further coronavirus stimulus as well as fears of a worsening pandemic around the world.

Lawmakers in Washington continued to send mix signals about progress toward a stimulus deal. Treasury Secretary Steven Mnuchin said Thursday that the White House won’t let differences over funding targets for Covid-19 testing derail stimulus talks with top Democrats.

Later, President Donald Trump said that he would raise his offer for a stimulus package above his current level of $1.8 trillion. House Democrats have passed a $2.2 trillion bill.

Meanwhile, the U.K. government announced plans to impose tougher coronavirus restrictions on London, while the French government declared a public health state of emergency earlier this week amid a surge in cases. Germany has also announced new rules to curb the spread of the virus.

“Global equity markets continue to churn, caught between hopes for a better economic future, yet struggling with a still-unchecked pandemic and signs that the economic rebound is fading,” strategists at MRB Partners wrote in a note. “Unprecedented policy actions have supported economic activity and boosted risk asset prices, but are not sufficient to generate a self-reinforcing economic expansion.”

“The latter still awaits successful COVID-19 treatments and vaccines, and both had unfavorable news this week,” they added.

Stephen Culp of Reuters also reports the Dow advances, S&P ekes out gain as vaccine timeline comes into focus:

The S&P 500 posted a nominal gain on Friday as further clarity regarding the timeline for the development of a coronavirus vaccine and much better-than-expected retail sales data brought buyers back to the market.

The Dow also joined the S&P in positive territory, both indexes snapping a three-day losing streak driven by halted vaccine trials and continued wrangling in Washington over a new pandemic relief package. But the Nasdaq ended the session lower.

Even so, they all posted gains on the week.

Pfizer Inc announced it could apply for U.S. authorization for the COVID-19 vaccine it is developing with German partner BioNTech in November. Pfizer’s stock gained 3.8%.

“The two highest-level market movers are the vaccine timeline and stimulus optimism,” said Ross Mayfield, investment strategist at Baird in Louisville, Kentucky. “Sometimes the market gets a reality check that even if we get a vaccine early next year that’s an incredibly aggressive and optimistic timeline.”

Retail sales in September blew past analyst expectations and consumer sentiment for the current month surprised to the upside, according to two separate economic reports. But with previous stimulus having run its course, the outlook is uncertain unless Washington can reach an agreement on a fresh round of fiscal aid.

“It’s important from the retail sales data to see that the consumer is not just limping a long but exceeding expectations,” Mayfield added. “I don’t know how long this can continue without stimulus but it’s heartening to see the consumer has held up pretty well despite some dire expectations.”

On the stimulus front, U.S. Treasury Secretary Steven Mnuchin told House Speaker Nancy Pelosi that President Donald Trump would “weigh in” with Senate Majority Leader Mitch McConnell if an agreement is reached on a new pandemic relief package. House Republican leader Kevin McCarthy, however, said he does not expect an agreement to be reached ahead of the Nov. 3 election as long as Pelosi is involved.

The Dow Jones Industrial Average rose 112.11 points, or 0.39%, to 28,606.31, the S&P 500 gained 0.47 points, or 0.01%, to 3,483.81 and the Nasdaq Composite dropped 42.32 points, or 0.36%, to 11,671.56.

Of the 11 major sectors in the S&P 500, seven ended the session in the black. While utilities had the largest percentage gain, energy suffered the biggest loss.

Third-quarter reporting season burst from the starting gate this week, with 49 of the companies in the S&P 500 having reported. Of those, 86% have cleared the low bar set by expectations, according to Refinitiv.

Oil services company Schlumberger NV posted its third straight quarterly loss due to falling crude prices and plunging demand. Its shares dropped 8.8%.

Railroad operator Kansas City Southern shed 2.7% and transportation and logistics company J.B. Hunt Transport Services Inc tumbled 9.7% after the companies’ quarterly results were hit dropping shipping demand.

The Dow Jones Transport index, considered a barometer of economic health, fell 1.3%.

Shares of fitness company Peloton Interactive Inc lost 3.7% after announcing a recall of faulty pedals on its popular exercise bikes.

Declining issues outnumbered advancing ones on the NYSE by a 1.30-to-1 ratio; on Nasdaq, a 1.07-to-1 ratio favored decliners.

The S&P 500 posted 50 new 52-week highs and no new lows; the Nasdaq Composite recorded 98 new highs and 20 new lows.

Volume on U.S. exchanges was 8.82 billion shares, compared with the 9.31 billion average over the last 20 trading days.

It's Friday, time for me to cover markets and give you my two cents.

Let me begin the comment with some really good news:

This news item is worth reading carefully:

Scientists at the Oxford University's physics department have developed a COVID-19 test that can identify the virus in 5 minutes or less, according to a news release from the university.

The speed in returning results means the test could be used in businesses, airports, and music venues to help provide coronavirus-free spaces, the release said. Rapid-result testing is considered an important part of reopening national economies during the pandemic. It involves a throat swab that is then examined with machine-learning software to quickly determine if the virus is present.

The researchers hope to start producing the test in early 2021 and have an approved device on the market within 6 months.

“Unlike other technologies that detect a delayed antibody response or that require expensive, tedious and time-consuming sample preparation, our method quickly detects intact virus particles; meaning the assay is simple, extremely rapid, and cost-effective,” said physics professor Achilles Kapanidis, PhD.

The test may be available in time to help nations manage the pandemic during winters to come.

“A significant concern for the upcoming winter months is the unpredictable effects of co-circulation of SARS-CoV-2 with other seasonal respiratory viruses; we have shown that our assay can reliably distinguish between different viruses in clinical samples, a development that offers a crucial advantage in the next phase of the pandemic,” said Nicole Robb, PhD, formerly a Royal Society Fellow at the University of Oxford and now at Warwick Medical School.

The development was announced on the preprint server MedRxiv and has not been peer reviewed.

Siemens Healthineers also announced the launch of a rapid antigen test kit in Europe that could provide a result in 15 minutes. The test uses a nasal swab and would not require a laboratory, Siemens said in a news release.

“This rapid antigen test makes testing available to more people across a wider variety of settings -- particularly in locations that need to test people quickly such as airports or that have limited access to laboratory resources such as schools,” Siemens said in a news release.

The company said it may apply for FDA authorization.

Why is this a potential game changer? Because if this device successfully detects COVID-19 in five minutes, it will allow many businesses to function properly without worrying about whether COVID is being spread internally.

Let me be clear on this, it's still early but if this device proves successful, it will allow airlines, cruise lines, restaurants, bars, casinos, etc. to operate without worrying about spreading the virus.

More than any vaccine or treatment, if this device is approved, it will be a real game changer because we will be able to quickly test people, many with asymptomatic COVID, and stop community spread in its tracks. It will also allow authorities to do proper contact tracing and isolate people who are asymptomatic.

I stress, however, that it's still early days and until this device and vaccines and better treatments come out, we better listen to Governor Chris Christie and wear our mask and take all the necessary precautions to limit the spread of the virus:

I want to explicitly quote Chris Christie: "We need to be telling people that there is no downside to you wearing masks, and in fact, there can be a great deal of upside."

I'm disturbed by the number of people who still refuse to wear masks in public and bemoan closures to parts of our economy, basically showing no concern for vulnerable citizens and our front line workers.

Let me quote Dr. Fauci: "A rising positivity rate means more hospitalizations and deaths."

Period. We are still in the midst of a global pandemic, it will get worse before it gets better, so people need to wake up and pay attention because the next six  months are critical.

And please, whatever you do, remember to take a minimum of 1,000 IUs of vitamin D a day, if not three to five times that amount during the winter months. 

The reason why we are seeing more cases in the winter months isn't just because we are more indoors, it's because we are not getting enough vitamin D. This is the only vitamin I recommend people take all year long, along with eating healthy Mediterranean diets, exercising moderately and sleeping a full eight hours a night.

Anyway, back to markets. Let me begin with something Michael Gayed posted earlier on LinkedIn, Italian bond yields have never been so low in 710 years:

Not sure if you can read my comment but here is what I said: "Seems to me there's a giant carry trade going on front-running central banks. Nice, steady gains using tons of leverage, works fine as long as nothing blows up spectacularly...".

By the way, I think Bridgewater is shorting Italian bonds which explains the lousy performance of its Pure Alpha II fund this year.

What about stocks? They popped earlier today on that stronger than expected US retail sales report, but if you look at economic momentum, it's clearly slowing:

I'm also not sure why mega cap tech stocks sold off at the close today but when I look at the daily chart of the Nasdaq-100 Index (NDX), it seems to be rolling over here:

I can't read too much into this as it can pop back up next week.

But one thing I did notice this week is some of the best-performing tech stocks this year, like Fastly (FSLY) got clobbered because they didn't exceed expectations:

Is there a shift in sentiment going on in these hyper growth names? Not sure, it could be another buy-the-dip selloff but Josh Brown brought up a good point on CNBC on Thursday:

He said: "There are 416 companies in the Russell 3000 losing money and their average return this year is 57%. Of those, 100 of them are up more than 100% this year."

This just underscores how much rampant speculation there is in the stock market with a hyper accommodative Fed and Robin Hoodies going crazy buying cloud shares and now focusing their attention on the elections, bidding up solar stocks to the moon:

Ridiculous but money is always looking for a place to hide and I suspect we will see more of these rolling bubbles over the next few years as rates remain ultra low.

What about financials? Some big banks reported solid numbers but their shares can't break out:

That's a five-year weekly chart above and it shows you financials are struggling in an ultra-low rate environment, something Liz Ann Sonders noted:

We shall see, if big banks can’t catch a bid, value investors are in for a lot more trouble ahead.

I think a lot of investors are worried about central banks meddling so much in markets and that US banks are in for a lost decade, much like European banks.

I doubt that because US banks are a lot more innovative and better managed.

Alright, let me wrap it up by going over the S&P sectors performance this week:

As shown, Industrials (XLI) led all other sectors gaining 1% and Real Estate (XLRE) and Energy (XLE) were the big losers, declining 2.3% and 2.1% respectively.

As far as stocks, here are the best-performing stocks (all stocks) this week:

And here are the best-performing large cap stocks this week:

Notice Zoom (ZM) shares keep zooming higher but I think it's setting up for a great short before it reports earnings. 

I also noticed shares of Concho Resources (CXO) popped big this week but the 5-year weekly chart remains very ugly and I wouldn't rush to buy until the long-term downtrend is clearly broken:

Alright, hope you enjoyed this comment and all my comments this week, wish you all a great weekend and remember to kindly donate to this blog using the PayPal options on the top left-hand side under my picture. I thank all of you who take the time to donate.

Below, a powerful interview with Governor Chris Christie who appeared on Good Morning America this morning. The former New Jersey governor talked exclusively to ABC News for the first time since he tested positive for coronavirus. “I let my guard down for a couple of days inside the White House grounds and it cost me in a significant way.”

Also, earlier this week, the panel on CNBC "Halftime Report" discussed how they're trading stocks, and how they view value versus growth picks.

Third, Treasury Secretary Mnuchin signaled Thursday that he will give ground on a key issue in stimulus negotiations with House Speaker Nancy Pelosi.

Earlier today, CNBC's Eamon Javers reported that President Trump and Treasury Secretary Steven Mnuchin are giving some ground to the Democrats for a stimulus deal, but prospects for an agreement remain dim. 

It sounds like Trump is ready to sign a deal to boost his re-election odds but it's still a work in progress. Truth be told, Democrats and Republicans shouldn't play politics and sign off on a stimulus package. Millions of Americans are counting on them to put them first so don't be surprised if they pass something before the election.

Update: On Monday, ConocoPhilips announced it was acquiring Concho Resources.