Stock Market Update For The Week Ahead: 'Positive Performance Regardless Of Which Party Wins'

The Past Week, In A Nutshell

What Happened: Last week ended negative despite better-than-expected earnings.

Remember This: “Overall market performance also tends to stall leading into an election," said Phil Mackintosh, Nasdaq Chief Economist. "Although once a result is known, the market tends to see a return to positive performance regardless of which party wins, even if the incumbent party doesn’t retain the White House.”

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

Technical

Broad-market equity indices ended the week lower with the S&P 500 retracing nearly 100% of the rally that began after the September sell-off.

During Last Week’s Action: Alongside a materialization of the Federal Reserve's growth risk factors -- a lack of fiscal support, the resurgence of the COVID-19 coronavirus, as well as a tightening of financial conditions -- U.S. index products showed increased confidence in their exploration lower.

Going back, last week started off with a clear break from balance and acceptance below the October 22 excess low, which suggested a change in directional conviction. The selling intensified, after a failed response at the $3,370 high-volume concentration, and continued into Friday’s close, through the $3,330 level, which marked the upper boundary of a low-volume concentration, initially formed by upside directional conviction.

Given Friday’s end-of-day rotation, away from value, the week ended within a two-day balance area, providing a clear trading framework for the week that follows. Therefore, if participants were to initiate and spend time outside of the balance area, then it's likely the market will continue in that particular direction. Otherwise, prices will remain range-bound, favoring short-term, responsive trade.

Fundamental

Alongside a resurgence of the COVID-19 coronavirus, in a commentary, Bloomberg discussed the notion that the fear of contagion is more impactful on the economy. In support is the following statement by Variant Perception, an independent economic research provider.

“As long as policymakers and the media present a more alarmist view of the virus’s impact than can be justified by a dispassionate analysis of the data, recoveries will continue to stutter. On the other hand, an easing of the fear portrayed would likely allow recoveries to accelerate at a much faster rate.”

Continuing, Moody’s Capital Markets Research finds that medical professionals claim a second COVID-19 wave will not exact the same toll on hospitalizations and deaths. With that, Bloomberg adds that the focus on mandatory lockdowns is overdone since the mere idea of catching the deadly virus invokes voluntary social distancing, which has a greater impact on mobility than the lockdowns. This is validated by IMF data which found that the lifting of the lockdowns generally had a more limited impact than imposing one.

As a result, Variant Perception suggests that negative coverage of COVID-19 be lightened.

Key Events

• Monday: Markit Manufacturing PMI, ISM Manufacturing, Construction Spending, Presidential Election.
• Tuesday: Factory Orders.
• Wednesday: MBA Mortgage Applications, ADP Employment Change, Balance of Trade, ISM Non-Manufacturing Business Activity, ISM Non-Manufacturing Employment, ISM Non-Manufacturing New Orders, ISM Non-Manufacturing PMI, ISM Non-Manufacturing Prices, EIA Cushing Crude Oil Stocks Change, EIA Distillate Stocks Change.
• Thursday: Continuing Jobless Claims, Initial Jobless Claims, Fed Interest Rate Decision, Fed Press Conference.
• Friday: Non-Farm Payrolls, Unemployment Change, Average Hourly Earnings, Average Weekly Hours, Nonfarm Payrolls Private, Participation Rate, Wholesale Inventories, Consumer Credit Change.

Recent News

• The U.S. faces the biggest week of 2020 with the election, Fed, and jobs report.
• High-yield spreads are showing a muted response to ultra-high equity volatility.
• Independent traders doubt new lockdowns in Europe will lead to a further oil rout.
• BlackRock Inc BLK will benefit from its 2021 ETF expansion in Brazil.
• Chevron Corp CVX and Exxon Mobil Corp XOM cut spending.
• Honeywell International Inc HON profit beats as cost cuts soften sales hit.
• The October equity market sell-off anticipates a meaningful drop in business sales.
• Tech companies will have to explain how algorithms work under a new EU ruling.
• Johnson & Johnson JNJ plans to test its COVID-19 vaccine in ages 12-18.
• Cboe Global Markets Inc CBOE tops profit views as retail activity supports.
• Under Armour Inc UA sees demand for sneakers, masks driving revenue.
• Walmart Inc WMT unit Sam’s Club and DoorDash team on medicine delivery.
• Joe Biden’s clean-energy ‘revolution’ faces challenge to match fossil-fuel jobs, pay.
• U.S consumer spending beats forecasts; worries over decreasing government money.
• Federal Reserve cut loan minimums, easing terms for Main Street Lending Program.

Key Metrics

• Sentiment: 35.3% Bullish, 29.4% Neutral, 35.3% Bearish as of 10/28/2020.
• Gamma Exposure: (Trending Lower) -78,315,991 as of 10/30/2020.
• Dark Pool Index: (Trending Neutral) 43.6% as of 10/30/2020.

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