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Congress' Stimulus Failure Wreaks Market Havoc


Remember when lawmakers went to Washington, D.C. to send home bridges to nowhere? Well, times have changed, as they are now ignoring the pleas of Americans and refusing to provide additional funding that would bridge economic survival until a Covid-19 vaccine can be completed and distributed.

The Whole Thing is Bananas

After President Trump’s series of tweets, the market slipped as if skidding on a banana peel. The market’s reaction was mild as if it was going along to help a negotiating ploy because it could have been a lot worse. Don’t get me wrong. The reversal was sharp and swift. There is no doubt the market was telling both sides of the political aisle to stop messing around.

For lawmakers to give up, and let the chips fall where they may, is bananas!

Earlier in the session, Federal Reserve Chairman Jerome Powell continued his campaign for more fiscal stimulus. He reminded everyone the economic recovery still has “a long way to go,” and reminded Congress of all the good stuff from job creation to business formation from the initial actions taken on Capitol Hill.

Powell also tried to reassure the debt crowd that “risks of overdoing it seem, for now, to be smaller.”  He tried to paint a picture of a strong recovery with a combination of fiscal and monetary policies working side by side. The Fed Chair told lawmakers not to take their foot off the gas. Unfortunately, Speaker Pelosi wouldn’t come down from a number that’s far too high, and President Trump decided to call it a day.

However, this does not mean talks are off, and President Trump did not mention Steven Mnuchin in his tweets. However, the whole thing is frustrating for investors, and the market has reflected as much.

Signs of Slowing

The Job Opening report, known as the JOLTS report for August, missed the mark. The 6.493 million was a 200,000 decline from July, and less than the 6.685 million expected. The private sector declined by 242,000, and construction dropped by 68,000.

Manufacturing climbed to 460,000 from 430,000 from a month earlier and 445,000 from the prior year.

To see the chart, click here.

Covid-19, Long Shadow of Economic Destruction

Boeing (BA) updated its Boeing Market Outlook (BMO) to reflect Covid-19 damage to the airline industry that will linger for the next decade.

Boeing sees the industry demand declining to $8.5 trillion from $8.7 trillion, and its orders decreasing 11% to 18,350; commercial planes are worth $2.9 trillion. The stock began the session higher after fetching positive comments and a higher share price target from Credit Suisse. The analyst there lifted his target to $184 from $154. 

The dude might want to find new sources from inside the company.

Meanwhile, Boeing, once the premiere investment in the market, sees its shares hit another air pocket (I could not resist). The company got some good news on the 737 Max yesterday, as the FAA released new pilot training requirements. One day, it will get back in the air. I used to say never sell Boeing, hold the stock for ten or twenty years – that was a long time ago.

Cruising Taking a Bruising

  • Royal Caribbean (RCL) extends the list of suspended sailings to include those departing on or before November 30th.
  • Carnival (CCL) announced it is canceling the upcoming 2020 and 2021 voyages (into Spring 2021) for three ships in its ultra-luxury Seabourn brand.

After the Close

More bad news for big Tech and Communication Services (XLC) after the closing bell when the U.S. House Antitrust subcommittee released its 449-page report, documenting market-power abuse by the following companies:

  • Apple (AAPL)
  • Amazon (AMZN)
  • Alphabet (GOOG)
  • Facebook (FB)

It’s a tough time for monopiles old and new, as General Electric (GE) received a so-called ‘Wells Notice’ from the Securities Exchange Commission (SEC). On another note, Facebook also announced it is banning all QAnon groups as dangerous.

Conclusion

What an ugly end to a day, which was exhibiting the kind of resolve that makes you want to put your money to work. Let’s see how much frustration spills over into today’s session.

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Today’s Session

Equity futures are higher this morning after a series of tweets from President Trump last night that essentially takes the stimulus negotiations and suggests key items could be addressed immediately in a bite sized approach.

Donald J. Trump

@realDonaldTrump

The House & Senate should IMMEDIATELY Approve 25 Billion Dollars for Airline Payroll Support, & 135 Billion Dollars for Paycheck Protection Program for Small Business. Both of these will be fully paid for with unused funds from the Cares Act. Have this money. I will sign now!

9:54 PM · Oct 6, 2020

Later President Trump reiterated his support for $1,200 stimulus checks .

For all the news and increased volitlity, investors would be making a huge mistake to simply check out.  It’s true, you must keep your head on a swivel, but the bias has returned to the upside.

We are going to get some kind of stimulus

The economy has stronger underpinnings.

Earnings in next three quarters are going to be magnificent (easy comparables help not whole story).



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