'Be Patient': Stock Market Update For The Week Ahead

The Past Week, In A Nutshell

What Happened: Last week ended positive despite the uncertainty-driven news cycle.

Remember This: “Market swings can be unsettling, and there’s a lot to think about with today’s headlines,” noted Lindsey Bell, chief investment strategist for Ally Inc-owned ALLY Ally Invest.

“However, history has proven to us repeatedly that it’s best to wait them out. The S&P 500 has moved 2% or more in 42 trading days this year, the most since 2008, yet the index is still up year-to-date. We’re also in the early innings of an economic recovery, so we believe stocks could run higher in the coming years. But investors need to be patient because it likely won’t be a straight line up.”

Pictured: Profile chart of the Micro E-mini S&P 500 Futures

Technical

Broad-market equity indices ended the week higher with the S&P 500 retracing 50% of the September sell-off.

During Last Week’s Action: Participants defended the low-volume area -- which denotes upside directional conviction -- below $3,320.

Most notable was what happened after Thursday’s failure to extend past responsive selling at the $3,370 high-volume ledge. The lack of conviction resolved itself in Friday's overnight liquidation on news that U.S. President Donald Trump contracted COVID-19, thus returning the market back into balance.

Defense of the low-volume area, alongside the development of low-excess highs during the U.S. cash session, suggests the potential for further upside. Auctioning through the low-volume area, however, may trigger downside follow-through, with the S&P 500 moving as far as the $3,198 swing low.

Scroll to the bottom of this story to view non-profile charts.

Fundamental

ARK Invest CEO and CIO Catherine Wood suggested another stimulus bill could be released prior to the election, with airlines being one major beneficiary. One problem with such a bill, however, is that the economy has hit escape velocity and some of the stimulus included may not be necessary.

“We also, in terms of fiscal policy, hope that these policies are not going to get in the way of so-called creative destruction," said Wood. "What we mean by that is disruptive innovation tends to take off during difficult times. But, if companies and industries are being subsidized just to hang on a little longer, that’s probably not good for anyone.”

Simply put, Wood theorizes the government's stimulus of dying industries is a disservice, as it diverts resources to less productive areas of the economy.

Key Events

Monday: Fed Barkin Speech, ISM Non-Manufacturing, Fed Evans Speech, Fed Bostic Speech.
Tuesday: Balance of Trade, Fed Chair Powell Speech, Fed Harker Speech, Fed Kaplan Speech.
Wednesday: MBA Mortgage Applications, Fed Barkin Speech, EIA Cushing Crude Oil Stocks Change, EIA Distillate Stocks Change, FOMC Minutes, Fed Williams Speech, Fed Kashkari Speech, Consumer Credit Change, Fed Williams Speech, Fed Evans Speech.
Thursday: Initial Claims, Continuing Claims, Fed Barkin Speech, Fed Kaplan Speech.
Friday: Wholesale Inventories.