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LIVE MARKETS U.S.-Wall St rallies with big tech, stimulus in focus

Mon 12th October, 2020 9:14pm
* Wall Street's three major indexes rally, Nasdaq gains outshine * Tech, comms svcs, cons disc lead S&P sector gainers * Energy sole sector loser * Dollar nudges lower; gold falls, oil tumbles NEW YORK, Oct 12 (Reuters) - Welcome to the home for real-time coverage of U.S. equity markets brought to you by Reuters stocks reporters and anchored today by Sinéad Carew. Reach Sinéad on Messenger to share your thoughts on market moves: Sinéad.Carew.thomsonreuters.com@reuters.net WALL ST RALLIES WITH BIG TECH, STIMULUS IN FOCUS (1605 EDT/2005 GMT) Wall Street's three major indexes closed higher on Monday as investors bet that lawmakers in Washington would eventually agree on a plan for another round of coronavirus stimulus. And Nasdaq's high-flyer stocks were leading the charge with a massive rally in Apple Inc AAPL.O shares, up 6.4%, ahead of its 5G phone launch scheduled for Tuesday. urn:newsml:reuters.com:*:nL4N2H32TN urn:newsml:reuters.com:*:nL1N2H00SO Other usual suspects providing the heftiest index point boosts for the S&P 500 .SPX were Amazon.com AMZN.O , up 4.8%, Microsoft MSFT.O , up 2.6%, Facebook FB.O adding 4.3% and Google parent Alphabet GOOGL.O , which climbed 3.6%. "The market leaders are once again the tech names supported by the fact that the economy continues to expand," said Phil Blancato, CEO of Ladenburg Thalmann Asset Management in New York. While there was no solid news of a stimulus agreement on Monday, investors were betting on a deal occurring at some point now that President Trump has said he wants one. "Whether we get it before the election or after it and regardless of who wins you're going to get something in excess of a two or three trillion dollar stimulus," said Blancato who is also betting that there is less chance of a contested presidential election with Joe Biden so far ahead in the polls versus Trump. "The election has become less of an issue." Here is your closing snapshot: (Sinéad Carew) ***** ACCESS TO CREDIT IS A MATTER OF SIZE (1355 EDT/1755 GMT) The Federal Reserve's unprecedented intervention into financial markets has allowed big U.S. companies continued access to credit markets throughout the coronavirus pandemic. Meanwhile, it has become harder for small businesses to borrow. Research published by Goldman Sachs on Monday shows banks' lending standards have tightened dramatically since the start of the pandemic, limiting the number of small businesses that can borrow. Typically, bank lending and public credit markets move in sync during moments of market uncertainty and volatility. The Fed's Primary and Secondary Credit Market Facilities have established the central bank as a lender of last resort in the corporate bond market, a backstop which has allowed big companies - both in the investment-grade and junk-rated markets - to borrow record amounts of debt in 2020. Issuance in the year to date has already exceeded previous annual records, according to the Securities Industry and Financial Markets Association (SIFMA), and companies have begun to borrow to fund acquisitions and dividends, activity not typically seen at this stage in the business cycle. Meanwhile, the Fed's Main Street Lending Program, which aims to support smaller businesses, requires bank lenders to take on some exposure to risk, unlike the Fed's primary corporate lending facility. Fewer small businesses have defaulted than their larger corporate peers, and the sector as a whole is in far better shape than it was in April, the Goldman analysts wrote. But, in the event of a wave of new infections and forced shutdowns, small businesses face far greater risks of default than their larger corporate peers. (Kate Duguid) ***** LOOK CLOSELY AT THE CONSUMER, THEN GET STIMULUS DONE (1328 EDT/1728 GMT) While he describes the U.S. economy's recovery since the Spring as "pretty remarkable" Jason Pride, Glenmede's Chief Investment Officer for private wealth is taking a closer look at trends for consumers, which are a big part of the rebound. While Glenmede's Reopening Index estimates that 77% of economic activity that was wiped out due to social distancing rules has already been regained Pride notes stark contrasts with pockets of the economy that are still struggling. For example low-contact areas like retail sales and gasoline purchases are back up to 96% while high-contact parts of the economy, which include restaurants and air travel are much more subdued at 46%, Pride notes. Then there's the matter of jobs, which are needed to fuel consumer spending with 840,000 Americans filing for unemployment benefits last week and big companies including American Airlines AAL.O , United Airlines UAL.O and Walt Disney DIS.N among those announcing layoffs. This was well below 6.9 million claim peak from the week of March 28th but "still meaningfully above the pre-pandemic trend of ~200,000 weekly claims per week" and all to say that "the U.S. economy is not quite out of the woods in this recession yet, according to Pride. As a result, Pride, like Federal Reserve Chair Jerome Powell, is advocating for more fiscal stimulus. More aid, he wrote could put the United States "on a gentler and less painful path toward full recovery once a vaccine becomes widely available." Yet there were no clearer sign of an agreement by Monday afternoon, although a White House spokeswoman did tell Fox earlier in the day that Republicans in the U.S. Senate will go along with what President Donald Trump wants in coronavirus relief legislation. (Sinéad Carew) ***** SOME BLUES AFTER A BLUE WAVE? (1234 EDT/1634 GMT) Robert C. Doll, Senior Portfolio Manager, Chief Equity Strategist, at Nuveen, is another Wall Streeter weighing in on the coming election and the market. Doll notes increasing speculation that Joe Biden will win the presidency, while Democrats could take the Senate, and retain the House. With that in mind, he says a Democratic sweep would have a mixed effect on stocks. According to the money manager, one result of a Democratic blue wave would be higher corporate tax rates. However, he also thinks markets would welcome improved trade relations with China and a push for more stimulus. A Democratic sweep is likely to reduce the after-tax return of owning stocks, "eventually putting downward pressure on stock prices," according to Doll. By his calculations, an increase in the corporate rate to 28%, "would decrease corporate profits 10% to 15%." He adds that if dividend and capital gains rates go from 23.8% to 43.4%, corporate profits "must rise nearly 50% to maintain the after-tax rate of return of stock ownership." That said, Doll sees many market sectors anticipating a Biden victory. For example, he highlights that clean energy stocks have outperformed significantly year to date, implying that the group is at risk for profit-taking if Trump is reelected. Meanwhile, he says that international, value and cyclical stocks require several factors to outperform U.S., growth and defensive stocks consistently. These factors include greater visibility on economic growth, a fiscal stimulus package, vaccine development and a weaker dollar. Doll says that the U.S. will need a "fiscal cleanup" over the next several years, but "success will hinge first and foremost upon ensuring solid private sector growth." In the end, despite massive monetary support, Doll believes equity markets will struggle to move higher in the absence of a medical breakthrough. (Terence Gabriel) ***** VACCINE HOPES, ELECTION TO HOG EARNINGS SEASON'S LIMELIGHT (1115 EDT/1515 GMT) While the third-quarter reporting season is knocking at the door, markets are likely to remain preoccupied with progress toward development of a coronavirus vaccine and the upcoming presidential election. In a research note, Goldman Sachs, chief U.S. equities strategist David Kostin writes that he in fact expects earnings to take an unusual back seat to the two other investor concerns. Regarding a vaccine, Kostin wrote that Good Judgement's superforecasters now see a 42% probability that enough doses to inoculate 25 million Americans will be distributed by the first quarter of next year, and a 48% chance of reaching that goal in the Q2 to Q3 timeframe, according to the note. As for the looming election, Kostin notes that prediction market odds of a Democratic sweep of the White House and both chambers of Congress have risen to 60% from 47% one month ago. This so-called 'blue wave' would have "a modestly positive net impact on the trajectory of S&P 500 profits," Kostin says, as likely fiscal stimulus and tax reform policies "would have largely offsetting effects, leading to S&P 500 EPS being roughly in line with our status quo 2021E estimate but lower thereafter." And now about earnings season, lest we forget. As companies report results for the July to September period, investors will get a sense of the COVID-19 pandemic's effect on fundamentals, according to the broker. Goldman sees third-quarter S&P 500 earnings falling 21% year-on-year (inline with Refinitiv's consensus), with collapsing margins, a "bi-modal" sales story and outperforming large-caps emerging as the over-arching themes. With respect to margins, the broker expects "aggregate index-level margins compressing by 220 bp on a year/year basis to 8.7%," a slight improvement over 8.6% in the second quarter. Goldman's anticipated 3% decline in aggregate sales will mask an underlying bifurcation, Kostin writes, with gains in healthcare, consumer staples and technology companies nearly making up for a 32% plunge in energy sales and industrials receipts falling 15%. Finally, the investment bank believes large-cap market leaders are likely to lead the pack. "The 5 largest S&P 500 stocks – AAPL.O , MSFT.O , AMZN.O , GOOGL.O , and FB.O – are expected to grow 3Q sales and EPS by +13% and +1%, respectively, compared with -5% and -24% for the rest of the S&P 500," Kostin writes. (Stephen Culp) ***** TIME FOR CYCLICALS AND SMALL CAPS? (1026 EDT/1426 GMT) With U.S. cyclicals and small caps catching more of a bid recently, even with a muddy outlook for a fiscal stimulus agreement in Washington, Morgan Stanley equity strategist Michael Wilson looks at their prospects. Many of his clients are asking whether a fiscal deal is really necessary for cyclicals to keep working or whether it matters if a deal happens before or after the election. While stimulus would help growth and inflation Wilson notes that "a strong macro recovery is already well underway" even as lawmakers have been failing, for months, to reach an agreement. According to the strategist cyclicals are the "most levered to a further rebound in growth" and as a result he is more constructive there vs defensives or "expensive secular growth." Behind Wilson's reasoning is that historically, a rebounding economic environment tends to mean outperformance of cyclical equities. Here he cites MS economists' view that there is enough economic momentum for a return to pre-COVID levels of real GDP by the middle of 2021 with real GDP growing 5.5% yr/yr next year, even assuming a fiscal deal doesn't' happen until 2021. (Sinéad Carew) ***** S&P 500: FROTHY CAN MEAN FLIMSY (0915 EDT/1315 GMT) As the S&P 500 index .SPX continues to recover off its late September low, the benchmark index is now within 3% of its record high. urn:newsml:reuters.com:*:nL1N2H00K3 With this, a contrarian measure of sentiment, based on the CBOE equity put/call (P/C) ratio, is once again suggesting an overly bullish, or especially complacent market, vulnerable to a reversal. (Click on chart below.) Indeed, the 5-day moving average (DMA) of the P/C ratio has now fallen to 0.43. Of note, since late 2018, sub-0.60 readings have coincided with significant S&P 500 highs. More recently, in early June, after this measure fell to a two-decade low at 0.402, the SPX promptly slid more than 8% in just five trading days (tds). And after its late-August low at 0.406, the SPX collapsed nearly 10% in just 14 tds. That said, on the plus side, the SPX is rallying off its late September lows, which occurred just after an important turn date. urn:newsml:reuters.com:*:nL1N2GD0LW Additionally, market internals are showing strength, suggesting there is still room to run. urn:newsml:reuters.com:*:nL1N2GZ0JJ Another factor to consider is that ahead of the three sharpest SPX declines, in late 2018, early 2020, and just last month, the P/C measure made a higher low against a higher-SPX-closing high. This pattern has yet to form. urn:newsml:reuters.com:*:nL1N2FY0Y5 The P/C measure could always fall further prior to a market reversal. In any event, at this time, its historically low levels in themselves can suggest caution. (Terence Gabriel) ***** STOCK FUTURES RISE (0844 EDT/1244 GMT) Wall Street equity index futures are pointing higher on Monday as investors look set to add to last week's rally on renewed hopes for a fresh coronavirus economic relief package. .N A White House spokeswoman told Fox on Monday that Republicans in the U.S. Senate will go along with what President Donald Trump wants in coronavirus relief legislation as the White House pursued a deal with Democratic lawmakers. urn:newsml:reuters.com:*:nL1N2H30B3 The Trump administration called on Sunday for Congress to pass a stripped-down coronavirus relief bill using leftover funds from an expired small-business loan program, as negotiations on a broader package ran into resistance. urn:newsml:reuters.com:*:nL1N2H206L Here is your premarket snapshot: (Sinéad Carew) ***** <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Wall Street points to higher open https://tmsnrt.rs/3nHXj6s SPXPC10122020B https://tmsnrt.rs/2FkkDpg Goldman Sachs graphic https://tmsnrt.rs/3iT2n40 Wall Street rallies with help from tech high-flyers https://tmsnrt.rs/2IfOwbo ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting By Sinéad Carew) ((sinead.carew@thomsonreuters.com; +1 (646) 223 6186; Reuters Messaging: sinead.carew.thomsonreuters.com@reuters.net))
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