S&P 500 opens higher on better stimulus tone. Markets moved to a risk-off stance Tuesday after President Donald Trump halted stimulus negotiations. The S&P 500 Index finished the day down 1.4%, but the broad US index moved higher when the president offered piecemeal negotiations. International markets seemed unfazed overnight. Australia and Hong Kong’s broad indexes posted substantial gains. Germany and the United Kingdom have edged higher at midday, helped by the shift in tone.
Markets put stimulus in focus. The S&P 500 swooned on Tuesday, giving back the day’s gains and more, after Trump ordered a stop to stimulus negotiations, promising a major bill after the elections. It then registered gains early Wednesday after the president announced he was willing to negotiate for the passage of high-priority piecemeal measures. The approach is likely a non-starter for Democrats, as both sides continue to treat stimulus like a political football.
Stimulus outlook still hazy. Despite the president coming back to the negotiating table Wednesday morning, prospects for the speedy passage of a stimulus bill have weakened significantly. The impact on sentiment from failure to pass a bill is likely larger than the direct impact on gross domestic product, but both will take a toll on families and businesses. No matter who wins the election, we’re likely to get a stimulus bill of similar size, although with different priorities. The most negative outcome for stimulus prospects likely would be a Joe Biden presidency with Republicans holding the Senate, as brinkmanship could continue into 2021.
What worked in Q3. Stocks fared well during the third quarter despite September’s weakness. Find out more about what worked—and didn’t—in the third quarter later today on the LPL Research blog.
Fourth quarter predictions. Third quarter delivered unexpected gains that historically have led to a strong fourth quarter. This week’s Market Signals podcast reviews factors that could possibly impact Q4 performance, including President Trump’s health, limited job growth, no new stimulus package, and a contentious election. Watch The Fourth Quarter That Will Be.
Technical update. A late sell-off pushed the S&P 500 down 1.4% Tuesday after trading near flat for most of the session. The index still needs to close above technical resistance at 3425 before it can make another run at all-time highs, but it has substantial support near 3200.
COVID-19 news. New cases in the United States continued to rise, as the seven-day average increased 4.5% week over week to near 44,000 (source: COVID Tracking Project). Hospitalizations appear to have leveled off and fatalities are gradually decreasing. The positive test rate has remained stable nationally at a still-concerning 5%, but several states, including North and South Dakota, Idaho, and Wisconsin are above 15%. The Food and Drug Administration’s stricter guidelines for emergency use authorization likely means vaccine approval will not come until after the election.
LPL Research in the Media
LPL Financial Chief Investment Officer Burt White was featured in an article on the elections in Forbes.
LPL Financial Research Equity Strategist Jeff Buchbinder was quoted in MarketWatch.
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