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End of Day Briefing - Recap of Thursday Oct. 1, 2020

Tech stocks lead the market despite stimulus bill uncertainty

Dow +35.20 at 27806.90, Nasdaq +159.00 at 11326.53, S&P +17.80 at 3380.80

[BRIEFING.COM] The S&P 500 gained 0.5% on Thursday, as strength in technology stocks outweighed losses in cyclical stocks amid stimulus bill uncertainty. The tech-sensitive Nasdaq Composite rose 1.4%, and the small-cap Russell 2000 rose 1.6%. The Dow Jones Industrial Average increased just 0.1%.

The session highs for the S&P 500 (+1.0%) came shortly after the open on reports that suggested Treasury Secretary Mnuchin and House Speaker Pelosi were narrowing their stimulus disagreements. Follow-up reports, however, indicated that distance remains between both sides. The benchmark index wavered with smaller gains for the rest of the day.

Technology stocks weren't hit by the stimulus headlines, as investors presumably bid up shares to find growth in case there is no stimulus or to benefit from growth if there is stimulus. Many of these stocks were found in the consumer discretionary (+1.5%), communication services (+1.4%), and information technology (+1.0%) sectors.

Amazon ($AMZN 3221.26, +72.53, +2.3%) outperformed, aided by Pivotal Research Group raising its AMZN price target to a Street-high $4500. The Philadelphia Semiconductor Index (+2.1%) got an added boost from STMicroelectronics ($STM 33.21, +2.52, +8.2%) after it issued upside revenue guidance.

The stimulus uncertainty, however, negatively affected the cyclical stocks on worries that extended time without fiscal relief could slow down a recovery. The energy sector dropped 3.1% amid reeling oil prices ($38.71/BBL, -1.50, -3.7%), followed by materials (-1.4%) and industrials (-0.3%). The health care sector (-0.5%) also closed lower.

In addition, today's economic data didn't instill confidence in these sectors. Weekly jobless claims remained elevated at 837,000 (Briefing.com consensus 850,000), personal income declined 2.7% m/m in August (Briefing.com consensus -2.0%), and the ISM Manufacturing Index for September decelerated to 55.4% (Briefing.com consensus 56.0%) from 56.0% in August.

For what it's worth, the S&P 500 found support at its ascending 50-day moving average (3359) after it briefly dipped into negative territory. It closed above the technical level for the second straight day.

U.S. Treasuries finished little changed, with longer-dated maturities reclaiming their early losses. The 2-yr yield was flat at 0.13%, and the 10-yr yield was flat at 0.68%. The U.S. Dollar Index declined 0.2% to 93.70.

Reviewing Thursday's economic data, which included several key reports on unemployment, manufacturing, and inflation:

  • The ISM Manufacturing Index for September checked in at 55.4% (Briefing.com consensus 56.0%) versus 56.0% in August.
    • The key takeaway from the report is that it underscores the view that the manufacturing sector continues to recover after its sharp downturn in the April-May period when the index was running at 41.5% and 43.1%, respectively.
  • Initial claims for the week ending September 26 declined by 36,000 to 837,000 (Briefing.com consensus 850,000) while continuing claims for the week ending September 19 decreased by 980,000 to 11.767 million.
    • The key takeaway from the report remains the same: initial claims continue to run at excessively high levels that speak to the ongoing challenges businesses face getting back to pre-pandemic levels.
  • Personal income declined 2.7% m/m in August (Briefing.com consensus -2.0%) following an upwardly revised 0.5% increase (from 0.4%) in July. Personal spending increased 1.0% (Briefing.com consensus 0.6%) following a downwardly revised 1.5% increase (from 1.9%) in July. The PCE Price Index and Core PCE Price Index were both up 0.3% m/m, as expected. That left the year-over-year increases for the Fed's preferred inflation gauge at 1.4% and 1.6%, respectively.
    • The expiration of enhanced unemployment benefits helps explain the big drop in personal income, yet the key takeaway from the report is that consumers appear to be spending more out of savings now, evidenced by the increase in spending and the concurrent drop in the personal savings rate (to 14.1% from 17.7%).
  • Total construction spending increased 1.4% m/m in August (Briefing.com consensus +0.8%) on the heels of an upwardly revised 0.7% increase (from +0.1%) in July. The key takeaway from the report is that total construction spending, despite the economic challenges posed by the coronavirus, was up 2.5% year-over-year.

Looking ahead to Friday, investors will receive the Employment Situation Report for September, the revised University of Michigan Index of Consumer Sentiment for September, Factory Orders for August, and auto and truck sales for September.

  • Nasdaq Composite +26.2% YTD
  • S&P 500 +4.6% YTD
  • Dow Jones Industrial Average -2.5% YTD
  • Russell 2000 -8.2% YTD

Market Snapshot

Dow27806.90+35.20(0.13%)
Nasdaq11326.53+159.00(1.42%)
SP 5003380.80+17.80(0.53%)
10-yr Note +1/320.677
NYSEAdv 2039 Dec 933 Vol 859.1 mln
NasdaqAdv 2213 Dec 1141 Vol 3.9 bln


Industry Watch

Strong: Information Technology, Communication Services, Consumer Discretionary, Real Estate
Weak: Energy, Materials, Health Care, Industrials


Moving the Market

-- Technology stocks lift market amid stimulus bill uncertainty

-- Cyclical sectors lagged, additionally pressured by mixed economic data

-- Technical support


Source: (Briefing.com)(theFly.com)

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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