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End of Day Briefing - Recap of Wednesday Oct. 7, 2020

Stocks bounce up on stimulus and coronavirus optimism

Dow +530.70 at 28303.40, Nasdaq +210.00 at 11364.53, S&P +58.49 at 3419.44

[BRIEFING.COM] The S&P 500 rose 1.7% on Wednesday, primarily driven by renewed stimulus hopes and secondarily coronavirus-related optimism. The Nasdaq Composite gained 1.9%, the Dow Jones Industrial Average gained 1.9%, and the Russell 2000 gained 2.1%.

After President Trump said he called off stimulus negotiations yesterday, he later clarified that he still wanted stimulus but in the form of standalone bills for airlines, small businesses, and citizens ($1200 payments). This jump-started the futures market, and news that Eli Lilly ($LLY 148.96, +4.83, +3.4%) requested emergency use authorization for its COVID-19 antibody treatment supported the rebound effort.

Accordingly, airline and retail stocks were some of today's biggest gainers, but the wealth spread around to every sector in the S&P 500 and every Dow component. The cyclical materials (+2.6%), consumer discretionary (+2.5%), and industrials (+2.2%) sectors rose more than 2.0%. The real estate sector (+0.3%) underperformed.

Inside the communication services sector (+0.9%), Netflix ($NFLX 534.66, +28.79, +5.7%) rallied nearly 6% after Pivotal Research Group raised its price target on the stock to a Street-high $650 from $600. Facebook ($FB 258.12, -0.54, -0.2%) was excluded from today's gains amid antitrust concerns stemming from a report from the House antitrust committee.

Essentially, today was a reset to yesterday's highs before President Trump upset the market with tweets. The S&P 500 closed back above its ascending 50-day moving average (3372).

Separately, the FOMC Minutes for the Sept. 15-16 meeting provided no surprises. Fed officials expressed concerns regarding a recovery if there is no more fiscal stimulus and remained in agreement that the current environment is disinflationary.

U.S. Treasuries finished lower on the longer-end of the curve, sending those yields back to their highest levels of the week. The 2-yr yield finished unchanged at 0.15%, while the 10-yr yield increased four basis points to 0.79%. The U.S. Dollar Index finished flat at 93.64. WTI crude declined 1.8%, or $0.71, to $39.96/BBL.

Reviewing Wednesday's economic data:

  • Consumer credit contracted by $7.2 billion in August ( consensus $14.1 billion) after increasing an upwardly revised $14.7 bln (from $12.3 billion) in July.
    • The key takeaway from the report is that August marked the sixth straight monthly contraction in revolving credit, which is something that hasn't happened since late 2010 - early 2011, underscoring the more restrictive credit stance adopted by lenders in the wake of the COVID shutdown and rise in unemployment.
  • The weekly MBA Mortgage Applications Index increased 4.6% following a 4.8% decline in the prior week.

Looking ahead, investors will receive the weekly MBA Mortgage Applications Index and the NFIB Small Business Optimism Index for September on Thursday.

  • Nasdaq Composite +26.7% YTD
  • S&P 500 +5.8% YTD
  • Dow Jones Industrial Average -0.8% YTD
  • Russell 2000 -3.4% YTD

Market Snapshot

SP 5003419.44+58.49(1.74%)
10-yr Note -4/320.785
NYSEAdv 21718 Dec 819 Vol 879.0 mln
NasdaqAdv 2549 Dec 797 Vol 3.9 bln

Industry Watch

Strong: Materials, Industrials, Consumer Discretionary, Information Technology
Weak: Real Estate, Utilities, Communication Services

Moving the Market

-- President Trump says he still wants standalone relief bills for airlines, small businesses, and citizens

-- Eli Lilly (LLY) requested emergency use authorization for its COVID-19 antibody treatment

-- Broad-based gains

ECONOMIC EVENTS: In the U.S., minutes from the Federal Open Market Committee held on September 15-16 were released by the central bank. Minutes from the last Federal Reserve meeting read in part: "Many participants noted that their economic outlook assumed additional fiscal support and that if future fiscal support was significantly smaller or arrived significantly later than they expected, the pace of the recovery could be slower than anticipated."

TOP NEWS: After the market close last night, the House Judiciary subcommittee on antitrust reported its findings following a 16-month investigation, claiming that it sees monopoly power exhibited at Facebook ($FB), Amazon ($AMZN), Apple ($AAPL) and Google ($GOOG). The Democratic report seeks a break-up of the tech giant's platforms and looks to limit their powers going forward. 

Apple responded by stating that it "vehemently disagrees" with the conclusions reached in in the U.S. House report and that it doesn't have dominant market share in any categories of its businesses, while Facebook, Amazon and Google also pushed back against the conclusions of the subcommittee with their own statements.

In COVID-19 news, Eli Lilly ($LLY) announced additional details on its SARS-CoV-2 neutralizing antibody programs - including interim data on combination therapy in recently diagnosed patients with mild-to-moderate COVID-19 - and plans to make these therapies broadly available to patients. Based on the combination therapy data, along with the previously disclosed findings for LY-CoV555 monotherapy, Lilly has engaged global regulators, including the FDA, regarding potential Emergency Use Authorization, the company noted. 

Elanco ($ELAN) gained 13.6% after activist investor Sachem Head Capital Management confirmed it holds a 5.9% stake in Elanco common stock, noting that the the net investment costs of the common stock, the cash settled swaps and the physically settled swaps directly owned by the Sachem Head Funds is approximately $1.21B. In other activist investor news, Third Point founder Dan Loeb sent a letter to the board of directors of The Walt Disney Co. urging it to halt its $3B annual dividend and put more money towards its streaming budget for Disney+.

MAJOR MOVERS: Among the noteworthy gainers was Ocular Therapeutix ($OCUL), which gained 28.7% after the company reported preliminary Q3 revenue for Dextenza. Also higher was Levi Strauss ($LEVI) which rose 5.1% after the jeans maker reported sales, gross margin and earnings that were better than consensus forecasts.

Among the notable losers was Luminex ($LMNX), which dropped 5.9% after pre-announcing Q3 revenue. Also lower was Bandwidth ($BAND), which fell 7.1% after Morgan Stanley analyst Meta Marshall downgraded the stock to Underweight from Equal Weight.

Source: (

Disclosure: I may trade in the ticker symbols mentioned, both long or short. My articles represent my personal opinion and analysis and should not be taken as investment advice. Readers should do their own research before making decisions to buy or sell securities. Trading and investing include risks, including loss of principal.

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