Before The Bell - Stocks jumped out of the gate to start the week on Monday, partly on optimism that corporate profit trends would show relative improvement compared to earlier this year. The bond market was closed in observance of the Columbus Day holiday.
Earnings are expected to be not as bad as the economy slowly reopens from the widespread shutdowns enacted in the first half of 2020. Estimates are for perhaps a 20% decline in profits for the third quarter now being reported. That would be less steep than the second-quarter decline, and a possible indication of better times ahead. Corporate profits are expected to ease even less in the fourth quarter before recovering in 2021.
At the close, the Dow Jones Industrial Average climbed 251 points; the NASDAQ advanced an eye-catching 296 points; and the S&P 500 rose by 57 points. The session was a clear win for the bulls.
On the surface, it might seem a stretch for the market to move so much on the prospect of less-weak performance. But investors are looking ahead six months, or more, to potentially better times. If earnings do show relative improvement in the coming weeks and the tone of commentary from business leaders is positive, those would favorable signs.
Some of the big banks are among the first to report their September-quarter results. Wall Street will be looking closely at the direction of loan-loss provisions, which climbed sharply at midyear owing to the recession. A projected easing in loss provisions, which has played out in results released this morning, would be a broad plus regarding the financial health of the banks’ loan customers.
Elsewhere, the expectation that further stimulus measures could be enacted by Congress is supporting investor sentiment. Negotiations have been ongoing for some time, with both sides of the aisle initially far apart on the size of any package.
It seems a stretch that a deal will be reached ahead of the November elections, barring a breakthrough. But there is a general sense that an agreement of some shape and form can eventually be hammered out, possibly before yearend, since differences seem to be narrowing.
An aid package would be welcomed in lagging sectors of the economy, such as travel and leisure.
Less than an hour before trading begins, stocks appear set for a mixed opening, with lingering strength in the tech sector. But news regarding some vaccine delays seems to be keeping a lid on enthusiasm. - Robert Mitkowski