Over the weekend, the White House made a $1.8 trillion stimulus package proposal. Notably, it was rejected by House Democrats and Senate Republicans, albeit for different reasons.
We’re not going to delve into the nuances of the disagreements, but the line item of note was the price tag. Senate Republicans feel it is too much and House Speaker Pelosi said it still isn’t enough.
We’re generalizing here. Not every Republican or Democrat is adamantly opposed to the offer, yet it is apparent that the proposal has enough critics on both sides to make its passage highly unlikely before the election.
The prevailing narrative still points to the idea that the market is expecting a large fiscal package after the election, either because there is a Democratic sweep or, even if there isn’t a sweep, because the economic data will make it apparent to members of Congress that a large fiscal package is needed.
In any case, there’s a possibility that the fiscal package planning drags into 2021.
The implication is that the recovery trajectory will be at increased risk of undershooting expectations due to heightened uncertainty on the part of consumers and businesses that will slow the labor market’s recovery and hamper consumer spending.
Don’t let the positive bias in the futures market this morning fool you. It isn’t about an upbeat growth outlook. It’s just the opposite, which is why the Nasdaq 100 futures are showing disproportionate gains. That’s a growth-stock trade, not a growth trade.
Currently, the S&P futures are up 24 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 204 points and are trading 1.8% above fair value, and the Dow Jones Industrial Average futures are up 52 points and are trading 0.4% above fair value.
Apple (AAPL) is indicated 3.4% higher in front of tomorrow’s iPhone 12 event, which everyone knows is coming. Amazon.com (AMZN) is indicated 2.4% higher in front of its Prime Day, which everyone knows starts at midnight tonight in 19 countries.
Microsoft (MSFT) is up 1.8%; Alphabet (GOOG) is up 2.0%; Facebook (FB) is up 2.2%; NVIDIA (NVDA) is up 1.7%; and Tesla (TSLA) is up 2.1%.
These growth/momentum stocks, and some others, are carrying the broader market on their back. That’s why the S&P futures look better than they would otherwise on the understanding that a big stimulus package seems unlikely to happen in the near future.
Still, it all counts for passive index investors, which is to say a gain is a gain no matter the underlying impetus for the move.
COVID vaccine/treatment optimism is also still part of the market narrative, as is the liquidity factor, the expectation of a big earnings upswing in 2021, and the notion that polling data showing Joe Biden with a large lead over President Trump is a precursor to an uncontested election outcome.
The stimulus issue is important, but clearly it hasn’t been completely distracting for the stock market, which is up 3.4% this month. The Russell 2000, meanwhile, is up 8.6%.
This week will see an ignition of the third quarter earnings reporting, with the financial sector taking the lead on that front. Separately, the Senate confirmation hearing on the nomination of Amy Coney Barrett to the Supreme Court starts today as well.
There will be a lot to talk about this week. We can’t talk of a stimulus deal this morning, however, because there isn’t one. That’s good for the growth stocks, though, which is why we can still talk of an upward move for the stock market.
Originally Posted on October 12, 2020 – No Stimulus Pushes Growth Stock Trade
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