Market at a Glance - 10/29/2020

By: Christopher Mistal

October 29, 2020

Fundamental: Mixed. Q3 growth did rebound at a better than expected pace, up 33.1% (advance estimate). Existing home sales were running at a 14-year high in August, but abruptly dipped in September as record high prices weigh. Weekly initial jobless claims are trending lower but remain stubbornly elevated. Corporate earnings have been mostly fair against a rather low bar while estimates continue to climb. Covid-19 cases are climbing at or near record levels depending on location threatening to undo recent easing of restrictions.

Technical: Pullback. DJIA, S&P 500 and NASDAQ have all retreated back below their respective 50-day moving averages. Thus far, respective 200-day moving averages have held, but could be tested this time around. DJIA has closed below September’s closing low; S&P 500 and NASDAQ have not. As long as September’s closing lows are not violated by all three indexes, this pullback could be nearing its end.

Monetary: 0 – 0.25%. The Fed’s next meeting begins the day after the election, on November 4. No changes to existing policy are expected and it will likely take a backseat to election results. The Fed is still “all in” and it is best not to forget, “don’t fight the Fed.” ZIRP following the financial crisis may not have solved every issue, but it sure did boost the stock market. It wasn’t a straight line higher; there were pullbacks and corrections throughout. It seems reasonable to expect a similar outcome this time around.

Seasonal: Bullish. November is the #1 month for S&P 500. It’s also the first month of the “Best Six/Eight Months.” Since 1950, November is #1 DJIA and S&P 500 month in election years. Recent exceptions include November 2000 (undecided election) and 2008 (financial crisis). Keep an eye out for our Official MACD Seasonal Buy Signal. It can trigger anytime now.

Psychological: Frothy Again. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors climbed to 60.6%. Correction advisors stood at 19.2% while Bearish advisors were at 20.2%. These readings came before this week’s market retreat. There may be a modest retreat in Bullish Advisors next reading, but it is not likely to be sizable as the election is nearly here and sentiment generally runs high from around now to yearend.