“Before or after the election?” On the issue of additional fiscal stimulus – will it come before or after election? Which presidential candidate is better for the market – should we decide before or after the election? This seems to be the prevailing question the market is trying to reconcile when deciding how to price equities, as even strong earnings reports and upbeat economic data can’t keep the market from its familiar dance of two steps forwards and one step back.
On a positive note, stocks closed slightly higher Friday, reversing earlier session declines on reports of stalled progress with another financial-aid package. This raised further concerns that a deal is not likely before Election Day on November 3rd. “It would be very difficult, even if you had a deal in the next few days,” said Larry Kudlow, director of the White House’s National Economic Council. “The ball’s not moving much right now,” he added.
The likelihood of stalled talks was disappointing, given that on Thursday the White House and House Speaker Nancy Pelosi were upbeat publicly about the prospects of a agreement which, at the time, seemed imminent. Not anymore. On Friday the Dow Jones Industrial Average gave up 28.09 points, or 0.1%, to close at 28,335.57, pressured also by a 10.6% drop in shares of Intel (INTC). The S&P 500 rose 11.90 points, or 0.3%, to end at 3,465.39, while the tech-heavy Nasdaq Composite Index added 42.28 points, or 0.4%, to finish at 11,548.28.
For the week, the Dow lost 1%. Meanwhile, both the S&P 500 and Nasdaq snapped a three-week winning streak, closing about 0.6% and 1.1%, respectively. At this point, it seems the market has made up its mind that not only won’t a deal happen until after the election, but waiting for a larger stimulus package — which appears more likely in January or February — is the better approach. As such, the broader market will continue to trade in this fairly tight range until then. That’s neither good or bad, but adjusting expectations is now necessary.
From an investment perspective, there continues to be encouraging signs evidenced by the fact that nine out of the eleven sectors closed higher on Friday. A standout group was the financials which rose more than 1% on the week, thanks to as a rise in the yield curve which drove the banks higher. If the trend is to continue next week the tech stocks, namely the FAANGs, will have a say in that.
This week we have a bevy of earnings, including more than a few high-profile companies reporting. Here are some of the names to keep an eye on.
Advanced Micro Devices (AMD) – Reports after the close, Tuesday, Oct. 27
Wall Street expects AMD to earn 35 cents per share on revenue of $2.56 billion. This compares to the year-ago quarter when earning were 18 cents per share on $1.8 billion in revenue.
What to watch: Expectations are high for AMD, given the downbeat Q3 results released last week from rival Intel (INTC) which suggests AMD is handily gaining market share. The chipmaker, which has topped the Street’s revenue estimates in four of its last six quarters, is well-positioned to do so again. Aside from the top and bottom line numbers, investors will focus on metrics such as shipment growth and any commentary from management about expectation for Q4 and beyond. The market assumes minimal disruption to AMD’s business despite the pandemic. AMD shares have been muted, falling about 4% over the past week, though still up some 75% year to date.
Microsoft (MSFT) – Reports after the close, Tuesday, Oct. 27
Wall Street expects Microsoft to earn $1.54 per share on revenue of $35.72 billion. This compares to the year-ago quarter when earning were $1.38 per share on $33.05 billion in revenue.
What to watch: Work and learn-from-home trends continue to power increased demands for Microsoft services, evidenced by the strong Q4 demands in its Productivity and Business and Intelligent Cloud segments. But the strength of Microsoft’s Commercial Cloud business has been, and will continue to be, the catalyst for the stock’s strong year-to-date return of 40%. Last quarter Azure revenue was up 50% year over year — a slight deceleration from the 61% growth in Q3. Wall Street remains broadly positive about the company’s prospects to achieve double-digit revenue growth in fiscal 2021, driven by Azure’s momentum. On Wednesday investors will want some evidence that Azure and Microsoft’s Teams (a Zoom (ZM) competitor) can continue to propel the company higher.
Amazon (AMZN) – Reports after the close, Thursday, Oct. 29
Wall Street expects Amazon to earn $7.25 per share on revenue of $92.48 billion. This compares to the year-ago quarter when earnings came to $4.23 per share on revenue of $69.98 billion.
What to watch: Shares of Amazon have moved 5% higher this week as investors anticipate not only strong numbers from Prime Day, but also better-than-expected results for the Q3. The e-commerce giant is executing at near perfection evidenced by the 40% rise in total net revenue in the second quarter. The company is benefiting from a combination of factors. Aside from the strong demand acceleration caused by the pandemic, Amazon continues to be effective in its strategy not only to grow its Prime members, but also getting them to spend more during each transaction. And there is tons of evidence to suggests that its market share gains are here to stay, beyond the pandemic. As such, while some investors might be concerned about near-term margin pressure, it would be a mistake to part with this long-term winner.
Apple (AAPL) – Reports after the close, Thursday, Oct. 29
Wall Street expects Apple to earn 71 cents per share on revenue of $64.16 billion. This compares to the year-ago quarter when earnings came to 76 cents per share on revenue of $64 billion.
What to watch: This quarter will be all about expectations for the iPhone 12, in all its variants. Analysts have lauded the device, describing it as the most significant upgrade super-cycle of the iPhone since the iPhone 6 was launched with a larger screen. The iPhone 12, however, is deemed more important not only for its 5G capabilities, but also for features such as its world-facing LIDAR sensor which comes on the Pro models. All told, unlike prior models, there are few mere “incremental” upgrades. This one is more revolutionary. The question is, will its sales meet such high expectations? But Apple is more than just a phone shop. Its Services business, which now accounts for 22% of all revenue, surged last quarter to $13.2 billion, topping consensus of $13.1 billion. Can these impressive trends continue?
Facebook (FB) – Reports after the close, Thursday, Oct. 29
Wall Street expects Facebook to earn $1.89 per share on revenue of $19.73 billion. This compares to the year-ago quarter when earnings came to $2.12 per share on revenue of $17.65 billion.
What to watch: Snap’s (SNAP) better-than-expected earnings results suggested that the concerns the market had about softness in the digital advertising advertising market, particularly amid the pandemic, were too pessimistic. This news sent Facebook stock soaring in proxy, especially after Snap noted that ad spending had not only resume, but also increased. And this would bode well for Facebook which should see a strong surge in daily active users (DAU) and monthly active users (MAU) amid the work-from-home environment. The company has topped consensus earnings expectations in each of the past ten quarters, underlying an exceptional execution track-record. Facebook stock which has gained almost 35% year to date assumes the company won’t falter. But will this be the quarter that execution takes a hit? I wouldn’t bet on it.
Wall Street expects Alphabet to earn $11.09 per share on revenue of $42.73 billion. This compares to the year-ago quarter when earnings came to $10.12 per share on revenue of $40.50 billion.
What to watch: Shares of Google parent Alphabet have been on fire, reclaiming their October high levels, despite a landmark antitrust suit against the company which alleges Google engages in anticompetitive conduct aimed at securing its monopolies in search and search advertising. “This lawsuit strikes at the heart of Google’s grip over the Internet for millions of American consumers, advertisers, small businesses and entrepreneurs beholden to an unlawful monopolist,” said U.S. Attorney General William Barr. But that’s not enough to keep Google stock down. The shares have risen 10% over the past month, including 5% this past week alone. As with Facebook’s response to Snap’s earnings, investors have seemingly been encouraged by an expected uptick in Google’s bread-and-butter advertising business.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.