Weekly Snapshot October 19, 2020
US stocks finished a choppy week with modest gains, as the S&P 500 Index rose 0.2% closing at 3483, the 3rd consecutive week of gains after September’s pullback.1 The first week of the Q3 earnings season was met with worsening news on Covid-19. Ten states reported record daily highs in newly reported cases and by the end of the week, over 60k daily cases were reported nationwide, the highest number in two months.1 There was also a lack of progress on negotiations over additional fiscal stimulus, and with the election only a few weeks away, signs are growing that a deal is unlikely until after the election. Finally, two late-stage vaccine drug trials (from Johnson and Johnson and Eli Lilley) were temporarily halted over safety concerns, a common occurrence in drug trials, developments investors took in stride. Stocks were supported by early signs of better-than-expected Q3 earnings, especially from the banks which reported strong trading results and loan-loss reserves that are sufficient for now, and after the September Retail Sales report also topped consensus expectations with gains of 1.9% m/m, the 5th consecutive monthly gain.1 Despite high unemployment and a growing number of people entering poverty status following 10 weeks without Federal unemployment benefits, the consumer sector is surprisingly healthy, after deleveraging before the pandemic’s onset and with household net worth boosted by the appreciation of housing and stocks.1 Economists also believe the high savings rate (consumers saved 14.1% of disposable income this August compared with 7.3% a year earlier) has given households fuel to spend, despite the cut to an extra $600 a week in jobless benefits at the end of July.1 Interest rates remain anchored in the 0.75% range for the 10-year Treasury Bond, though TIPS yields have drifted higher, an inflation indicator we are closely watching.1 Through the close Friday, year to date results for the major indices are as follows: S&P 500 9.5%, Russell 2000 -1.0%, MSCI EAFE –5.7% and Bloomberg Barclays Aggregate Bond 6.8%.2
WHAT WE’RE WATCHING IN THE WEEK AHEAD
- Q3 Earnings Reports – Analysts expect Q3 earnings for S&P 500 companies to decline 18%, which would represent the 2nd worst quarterly result since the Great Recession in 2009.1 This would also represent the 6th consecutive quarter of negative earnings comparisons, a period that extends beyond the beginning of the pandemic.1 Though conditions remain difficult, especially for service-related companies that depend on travel, gatherings, and entertainment, this is far better than Q2’s 35% decline and up from expectations of a 25% decline on June 30th.1 Investors seem content with directional improvements and evidence that the worst-case possibility isn’t occurring. While only 10% of S&P 500 companies have posted Q3 earnings thus far, 86% of those have beaten EPS expectations by a whopping 22%, not unlike the record level of positive earnings surprises seen in Q2.1 This week’s lineup of companies due to report encompasses a broad section of the index, with bellwethers such as Netflix, Procter & Gamble, Union Pacific, Verizon, Abbott Labs, Southwest Airlines, American Express and IBM due to report Q3 results this week.1
As always, we appreciate your confidence in our team.
Fundamentum Investment Committee
Chad Roope, CFA® Portfolio Manager
Paul Danes, CFA® – Investment Committee
Trevor Forbes – Investment Committee
Matt Dunn, CFA® – OSJ Supervisor
1-Morningstar Direct 10/19/20
Investment advice offered through Fundamentum LLC a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the investment objective of any investment strategy will be attained. Investing involves risk including loss of principal. Past performance is no guarantee of future performance. All indices are unmanaged and may not be invested into directly.