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Thursday, October 22, 2020

Dow Climbs 100 Points, Breaks Three-Day Losing Streak On Strong Retail Sales, As Deficit Reaches Record $3.1 Trillion

Topline

After falling for three straight days, the two main broad-market indexes in the U.S. ticked up on Friday–one of them just barely–as new economic data revealed that U.S. consumers are spending more than forecasted, but businesses hurt the most by the pandemic aren’t necessarily getting those dollars.

Key Facts

The Dow Jones Industrial Average ended the day up 112 points, or .4%, while the S&P 500 ticked up less than .1%, while the tech-heavy Nasdaq fell .4%.

Friday ended a packed week of bank earnings, with banks Ally Financial, State Street and BNY Mellon all reporting earnings before the opening bell that surpassed Wall Street expectations.

Meanwhile, shares of bankrupt car-rental company Hertz Global skyrocketed up nearly 150% after the firm announced Friday morning that it’s raised nearly $1.7 billion in debt financing that should help the firm weather the pandemic’s toll on the travel industry.

U.S. industrial production ticked down .6% in September, the weakest showing since this spring, notes AP.

The United States budget deficit reached a record $3.1 trillion in fiscal 2020, $2.1 trillion more than the deficit in 2019, as the government ramped up spending to combat the coronavirus pandemic.

Global markets were mixed on Friday: The United Kingdom’s FTSE 100 climbed 1.5%, and France’s CAC 40 jumped 2%, while Japan’s Nikkei 225 ended the day down .4%.

Tangent

Data released Friday morning by the U.S. Census Bureau revealed that retail sales in the United States surprisingly climbed 1.9% year over year in September, hitting $549.3 billion after slowing briefly late in the summer, notes Charlie Ripley, a senior investment strategist for Allianz Investment Management, adding, “Despite unemployment benefits expiring for millions of Americans, today’s retail sales figure shows us there is still some gas in the tank for the consumer. The overall level of retail sales is well above pre-pandemic levels; however, when you dig deeper into the underlying data, businesses that have been hit the hardest continue to struggle.” In-store spending on food services (down 20%), gasoline (down 16%) and clothes (down 33%), for example, has plunged in the first nine months of 2020, as spending on nonstore (online) retailers and building materials surge–up 21% and 13%, respectively. 

Crucial Quote

“While economic activity has recovered somewhat since the depths of the April Covid-19-related shutdowns, most indicators illustrate there is still a gap between where we currently are and where ‘normal’ would be,” says Hilltop Securities’ Tom Kozlik, pointing to recent economic data like the number of hours worked by hourly employees.

Key Background

Stocks took a dive in early September as the need for another round of coronavirus relief weighed on the market’s all-time highs. Heightened prospects of renewed negotiations between House Speaker Nancy Pelosi (D-Calif.) and Treasury Secretary Steven Mnuchin began to bolster growth toward the end of last month, but a tireless back and forth in Washington on the exact terms of any new fiscal stimulus has seen stocks waver in recent weeks. With negotiations for a pre-election federal stimulus bill coming down to the wire, Senate Majority Leader Mitch McConnell (R-Ky.) threw a wrench in the works on Thursday, saying that the $1.8 trillion plan recently proposed by the White House as a compromise with Pelosi and other top Democrats is “a much larger amount than I can sell to my members.”

Further Reading

Peloton Has Soared 350% In 2020. Here’s Why The Stock Will Keep Rising This Year, According To Experts (Forbes)

McConnell Won’t Support $1.8 Trillion White House Stimulus Bill—Even If Pelosi And Trump Make A Deal (Forbes)

Stocks Fall Again, Dow Tanks 250 Points As Jobless Claims Reach Highest Levels Since August (Forbes)

Goldman Sachs Posts $3.5 Billion Earnings, Smashing Wall Street Expectations As Revenues Surge 30% Mid-Pandemic (Forbes)

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