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Growth Concerns Bubbling to Price Action Surface (Again)

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Chief Market Analyst

Currently, the S&P futures are down 67 points and are trading 2.0% below fair value, the Nasdaq 100 futures are down 202 points and are trading 1.7% below fair value, and the Dow Jones Industrial Average futures are down 643 points and are trading 2.3% below fair value.

The stock market is going to open sharply lower and the headline catalysts for the weakness are ripe for the picking.

  • Microsoft (MSFT) topped Q1 EPS and revenue expectations, but its Q2 revenue guidance was weaker than expected
  • France is said to be on the verge of announcing a one-month lockdown and Germany is believed to be ready to announce new shutdown measures as well
  • Major bourses in Europe are suffering material losses this week (Germany’s DAX Index is down 4.1% today and 8.5% for the week)
  • The seven-day average for new coronavirus cases in the U.S. has recently reached an all-time high
  • Boeing (BA) posted a smaller than expected Q3 loss, but pointed to the need to cut additional jobs in 2021
  • President Trump is pointing to the prospect of a large a stimulus deal after the election
  • An average of recent polls in Florida, according to RealClearPolitics, shows President Trump with a small edge over Joe Biden for the first time since April, which is feeding some renewed angst about the possibility of a contested election result
  • Vaccine progress is being made, although reports are increasingly cautioning that any vaccine, if one is approved relatively soon, won’t be widely available most likely until at least mid-2021, meaning the COVID health risk and weaker economic activity could persist longer than many have been hoping
  • The S&P 500 closed below its 50-day moving average (3408) for the second straight session, weighed down by weakness in the cyclical sectors

There are some other catalysts that could be thrown into the headline mix, but the overarching influence boils down to growth concerns.

If global economies aren’t going to be functioning as fully as had been hoped for any number of reasons, then the hoped-for earnings recovery just might not live up to the currently lofty expectations that project 24.2% year-over-year growth for 2021, according to FactSet.

There is a lot of ground to cover of course between now and the end of 2021. That earnings recovery could ultimately come to fruition, yet the point is that there is enough in the headline mix right now to make the market question the viability of achieving such an estimate.

Accordingly, the thinking that the market has gotten ahead of itself is contributing to the selling efforts, which are being further influenced by a weakening technical posture, weakening price action in growth/momentum stocks in spite of good earnings results, a weakening in the cyclical sectors, and some strengthening in the performance of longer-dated Treasury securities.

Throw in some renewed election uncertainty and there is an ample basis for buyers to keep to the sidelines, creating lower bids that have the potential to feed into even lower prices that are driven by the triggering of sell-stop orders.

This is the related price pressure on the stock market at the moment, which is destined for a rough start rooted primarily in concerns about growth and secondarily in concerns about the price action.

Originally Posted on October 28, 2020 – Growth Concerns Bubbling to Price Action Surface (Again)

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