Monday, October 3, 2022 | Back issues
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Record Bad Day as S&P, Nasdaq and Dow Each Take a Bath

The week ended as it started: with carnage on Wall Street, as investors prepare for coming weeks of increased Covid-19 deaths and a tumultuous Election Day.

MANHATTAN (CN) — Posting its worst week in more than six months, Wall Street slid further Friday on persisting fears of a rocky presidential election and a worsening pandemic.

The Dow Jones Industrial Average, which had perked up a bit on Thursday after a dismal Monday and Wednesday, lost 153 points by the closing bell, a 0.5% drop. The Nasdaq and S&P 500 had much steeper drops for the day, of 2.4% and 1.2%, respectively.

In total, the Dow lost 1,830 points this week, while the S&P 500 shed 195 points and Nasdaq dropped 637 points.

“The final week of October is really spooking investors,” wrote James Vogt, a senior portfolio manager at Tower Bridge Advisors in an investor’s note, while reflecting on the fairly stable trading parameters that the S&P 500 and Nasdaq have enjoyed the last few months.

“Neither of them are ready to break out in either direction until we get resolution on the major themes we are well aware of, namely, Covid, the election, and future stimulus,” Vogt added.

The biggest question mark for investors is the election. Some analysts say another Blue Wave next week could help GDP. “Assuming Democrats sweep, we find Bidenomic could lift real GDP growth by 1.2ppts to 4.9% in 2021, vs. 3.7% in a status quo policy baseline,” according to an analysis by Gregory Daco and Nancy Vanden Houten at Oxford Economics.

A Biden presidency with a Democrat-controlled Senate would see the U.S. economy recoup Covid-related losses by mid-2021, two quarters earlier than in their baseline estimates. 

“While Biden’s fiscal agenda would likely feature tax increases in 2022, we believe the fiscal multipliers would be very low, around 20 cents-25 cents on the dollar,” they wrote, adding that Biden also likely would increase immigration to pre-Trump levels and take a multilateral approach to trade.

Other analysts say that, while stocks are likely to react more positively in the short term to a second Trump term than a Biden presidency, certain sectors could benefit over a longer period. 

“Although the market is generally expecting a negative reaction to Biden’s presidency (with Democrats favoring a higher tax rate), the tensions over immigration, global trade, and China might ease under his presidency,” wrote analyst Desmond Leong at Axi Traders.

Leong added that data from as far back as 1933 show that the stock market tends to underperform the following year after an election. “When a new party takes power, the stock market goes up by about 5% the following year,” he wrote. “But if the current president gets reelected, the stock market on average has increased slightly more at 6.5%.”

Economic data this week did little to swing markets back into positive territory. The biggest economic drop was the staggering 33% annualized increase in GDP for the third quarter, a few points higher than most experts had predicted. During the second quarter, GDP fell by 31% at an annualized rate. 

President Trump lauded the numbers. “Biggest and Best in the History of our Country, and not even close,” he tweeted on Thursday. “Next year will be FANTASTIC!!!”

Experts were quick to note, however, that the big numbers belie the truth about the continued pain in the U.S. economy.

Real GDP is still 3.5% lower than its previous peak at the end of last year and is about 5% lower than what it would have been had growth remained unaffected by the pandemic. 

Unemployment numbers also hit the lowest mark in months on Thursday, though overall unemployment remains high. More than 751,000 new unemployment claims were filed the week ending Oct. 24, according to data from the Labor Department. Meanwhile the number of claims under the Pandemic Unemployment Assistance program increased from 344,000 the week of Oct. 17 to nearly 360,000 last week.

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Labor Secretary Eugene Scalia hailed the unemployment data — and the GDP numbers — as proof that “our nation is bouncing back from the coronavirus pandemic faster than predicted.” He noted that about 3.4 million workers have come off unemployment doles in September and early October.

As the number of new claims overall has slowly decreased, however, millions of Americans remain unemployed, and those numbers could once again tick up if the recent spike in Covid-19 cases causes states to impose stricter lockdowns similar to those in Western Europe.

Such containment measures would “inevitably be economically damaging and result in more job losses,” wrote James Knightley, chief international economist at ING. “Even if we don’t see such action, health fears could mean consumers disengage with the economy — not go to shops, restaurants, and gyms — and activity weakens in any case.”

In total, more than 45 million have contracted Covid-19 worldwide, according to data compiled by Johns Hopkins University. In the United States alone, nearly million have been confirmed infected while about 229,000 have died. Worldwide, more than 1.1 million people have died from the virus.

The recent bloodbath on Wall Street did not stymie Big Tech companies, whose earnings reports eclipsed analyst expectations across the board.

In one of the week’s best earnings reports, Amazon showed a $27 billion year-over-year increase in net sales to $96 billion last quarter, a 56% increase over its Q3 2019 operating cash flow, and $6.3 billion in net income. The online retail giant expects an even better fourth quarter, with at least $112 billion in sales, a 28% year-over-year increase from Q4 2019. 

In a statement, CEO Jeff Bezos touted the company’s increase to a $15 minimum wage for all U.S. employees and Amazon’s creation of 400,000 jobs in 2020. “We’re seeing more customers than ever shopping early for their holiday gifts, which is just one of the signs that this is going to be an unprecedented holiday season,” he said.

Setting a new record for quarterly net sales during September, Apple posted $64.6 billion in net revenue last quarter, compared with the same period last year.

At the same time, however, the company’s net income dropped from $13.6 billion in its fourth quarter of 2019 to $12.6 billion in Q4 2020. Sales of the iPhone have dropped over the last year, with revenue from the product down more than 20%, or $6.9 billion, year over year.

“Despite the ongoing impacts of Covid-19, Apple is in the midst of our most prolific product introduction period ever, and the early response to all our new products, led by our first 5G-enabled iPhone lineup, has been tremendously positive,” CEO Tim Cook said in a statement.

Google parent Alphabet also posted a strong quarter, showing nearly a $6 billion increase in revenues over Q3 2019 and $4.2 billion increase in net income over that same period. The company credited a jump in advertiser spending on its search and YouTube segments for the good numbers.

Social media giants Facebook and Twitter, which were hammered earlier in the week on Capitol Hill, also saw decent gains last quarter. Facebook posted a 22% increase in revenue over the third quarter of last year and a whopping 29% year-over-year increase in net income.

Twitter also saw major gains in revenue — of $936 million in Q3 2020, a 14% increase over Q3 2019 — and a 10% jump in U.S. revenue due to a 15% increase in advertising revenue. The company’s daily average users gained only slightly, with 187 million last quarter compared with 186 million during Q3 2019. 

Having banned political ads in advance of the 2020 election, the company wrote that it expects September’s revenue trends to continue or even improve later in November, with the caveat that “it is hard to predict how advertiser behavior could change” as Election Day approaches.

Investors will focus on key economic data next week. The day after the election, ADP is scheduled to release its monthly jobs report, which may show just how fast the economy is rebounding. The payroll company’s September jobs report showed an increase of 749,000 jobs, and analysts hope October’s report beats that.

Also next week, Federal Reserve Chairman Jerome Powell will speak after the central bank’s Federal Open Markets Committee meeting on Nov. 5. Analysts expect the Fed to keep monetary policy accommodative and interest rates low, particularly given the shifting political landscape.

Ahead of the meeting, the Fed on Friday lowered the threshold for its Main Street Lending Program from a minimum loan size of $250,000 to $100,000.

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