Ugly headlines are everywhere! Wall Street is in for a rough session as virus anxiety runs wild. Europe’s second wave is accelerating and unleashing a new round of restrictions, while the US is poised to see record hospitalizations. Both J&J and AstraZeneca have restarted their COVID-19 vaccine trials in the US, but some investors are heeding warnings from a Berstein analyst on Pfizer and BioNTech’s phase 3 results. Bernstein’s Chen noted “we’re now well past when we would have expected the first analysis to occur”, which some are taking the results might not be as strong as hoped. Chen clarified that “delay is not necessarily reason for panic. It’s possible our estimates for interim timing is off and the first interim has not yet occurred.” Many investors expect Pfizer to provide an update this week, with J&J and AstraZeneca delivering updates closer to the end of the year.
Adding to the market woes was reports that China will sanction US defense companies Boeing and Raytheon over arms sales to Taiwan. Tensions were at a steady boil between China and the US, but a downward spiral here could lead to a significant risk aversion selloff. Wall Street has put the trade war on the backburner and given the sensitivity to COVID, an intensifying tit-for-tat response could disrupt calls for a choppy market until after the election.
A busy week for tech earnings got off a terrible start after SAP SE cut their sales forecast due to the pandemic effect. SAP SSE shares plunged over 20% in their biggest decline since 1999. SAP’s pessimism does not bode well for hopes for the global economic recovery to continue. Last week, Netflix stumbled post earnings and Tesla impressive results were unable to muster up a rally. This week will provide earnings from the rest of the mega-cap tech stocks, Apple, Amazon, Alphabet, and Facebook. If tech goes, the deteriorating outlook due to virus spread will likely yield massive risk aversion as investors head for the sidelines instead of rotating into cyclicals.
On the stimulus front, White House advisor Kudlow signaled any momentum is gone and did not provide any reason to be optimistic a deal would be reached this year. Stimulus talks are ongoing, but no one should be pricing in a deal before the election.
Early voting continues to indicate a record turnout will happen this election. Over 58.6 million ballots are in, already exceeding the 58 million mail or in-person early voting sites in 2016. Republicans are starting to vote, but expectations are still firmly pricing in a victory for Democratic presidential nominee Biden. The Senate race has a good chance going the Democrats way, but it is still too early to price that in.
US new home sales declined in September, a sign the brightest spot of the economy is cooling. The torrid pace of sales was expected to peak one of these months, but investors will not expect this to be the beginning of a new trend. Sales of new homes in September came in at 959,000, softer than the 1.025 million consensus estimate and downward revised prior 994,000 reading.
The Dallas Fed manufacturing survey was a pleasant surprise, expanding for a fifth month in a row with a strong beat and improvement from the prior month. The survey showed the production index climbed three points to 25.5, indicating a slight acceleration in output growth.
Crude prices continue to slide as surging coronavirus cases in both Europe and the Americas will trigger lockdowns that will cripple economic activity and downgrade crude demand forecasts. Hospitalizations in the US are rising rapidly as the third wave of new cases hit a record high. Europe is not helping the demand outlook at all, with surges in both new cases and hospitalizations. It is hard to get optimistic about the crude demand outlook due to COVID-19 and the deteriorating relationship between the world’s two largest economies. China’s expected sanctions on Boeing and Raytheon over the sales of $1.8 billion in arms to Taiwan could lead the global economic recovery down an unhealthy path.
Gold prices are hanging in there despite a strong dollar as investors flee to safe-havens over anxiety over the coronavirus crisis, SAP’s tech warning, growing expectations for a ‘blue wave’ and as the US-China trade war resumes. Risk appetite has left the building and gold doesn’t know quite yet what to do. Gold ETF’s have declined for two consecutive weeks, suggesting the retail investors are scaling down their bullish bets.
An expected sideways stock market until the election might not happen as the US-China trade war intensifies alongside growing expectations for lockdowns to cripple economic activity. Gold will continue to be vulnerable during panic-selling sessions, but ultimately should see safe-haven flows emerge.
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