Market Overview

Airline Shares Swing Higher After Trump Suggests Aid For Industry In New Tweet

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Airline Shares Swing Higher After Trump Suggests Aid For Industry In New Tweet

Last month when the market got smacked by frustration over sputtering stimulus talks, many investors bought the dip. 

Following yesterday’s late downturn after President Trump called off stimulus talks, the question becomes whether that same “buy the dip” mentality takes hold again. 

At least first thing, it appears to be. That’s in part because of a fresh presidential tweet on possible aid for airlines that sounded like a partial walk-back of yesterday’s stimulus retreat. This should be taken as a serious sign that something might happen, at least for the airlines, and it’s a good step either way. 

Even if airlines get help, though, it doesn’t necessarily mean a big rally. The way things have gone lately, nothing ever seems to be enough for the market. It’s generally had a “spoiled child” mentality on good news. 

It also remains headline-sensitive, and there’s not a lot of data or earnings around to blunt the impact of what’s going on in Washington. As noted here yesterday, investors should be careful not to make any major moves based on the hour-to-hour political developments. All the noise means volatility and quick swings could remain the flavor of the week. We saw Tuesday how quickly one headline can move the market. 

From The “Could Have Been Worse” Department...

While the late selloff yesterday was quick and violent, you could argue it wasn’t as steep as some might have thought. That seems especially true when you consider how so many investors appeared to be making bullish bets based on better odds of a stimulus, particularly for the airline industry. 

Airlines plunged steeply yesterday after the president’s announcement. Remember, a bunch of heavy hitters like Delta Air Lines, Inc. (NYSE: DAL), United Airlines Holdings Inc (NASDAQ: UAL) and American Airlines Group Inc (NASDAQ: AAL) are scheduled to report earnings over the next two weeks or so, making this an auspicious time for the sector. Many investors had been hoping airlines would be able to avoid furloughing employees if a stimulus came through.

The president’s Tweet this morning appeared to put help for the airlines back on the table, so we’ll see where things go. Airline stocks got some lift in pre-market trading. 

In other news, a couple of Fed speakers are scheduled Wednesday, and tomorrow brings the weekly initial jobless claims report. Expectations on Wall Street are for around 830,000 new claims, barely down from 837,000 the previous week. Weekly readings have really been stubborn about coming down. 

Another report to check is today’s crude production and supply reading from the U.S. government. Last week’s report showed a pretty good draw, possibly signaling decent demand for crude. We’ll see if that holds up. If it does, it could help tell a more positive consumer demand story. Crude remains just below $40 a barrel and we’ll see if it can get back to $40 and hold it. That’s the big test. 

Technicals And Techs

Tuesday’s selling took the SPX below its 50-day moving average near 3367, which it had pushed above earlier this week. The index again took that level out in pre-market trading Wednesday.  Technically, support held at 3352 yesterday and there’s more support down near 3310. Resistance appears to be up at around 3430, so we’ve got room to run either way. 

In general, the SPX has been rattling around in a range between roughly 3200 and 3400, but the recent rally reflected hopes for some action from Washington. If that’s truly out of the short-term picture, it raises questions about the so-called “reopening” industries, including travel, airlines, hotels, retail outlets, cruise ships, and other sectors so badly hurt by this economic pullback. A couple of cruise lines extended their “no-sail” through November yesterday. 

However, Tech stocks that saw some of the benefits of a “stay at home” economy the last seven months also hit the ropes yesterday afternoon. Tech took a breather last month and then appeared to get a little more buzz in early October before Tuesday’s soft performance. 

Back in September when we had a big selloff, Tech appeared to benefit particularly from the “buy the dip” mentality that followed. The thinking appeared to be, at least for some, that it represented a chance for them to get into some FAANG and semiconductor stocks at lower entry points after they’d missed their chances earlier in the year. 

For that to happen again, it seems likely the market would have to fall a lot more steeply than it did yesterday. Some FAANGS fell 20% from their highs in September, and having a one-day drop of roughly 1% to 2% as many stocks did yesterday doesn’t necessarily get prices looking too cheap.

With earnings season starting next week, it’s possible things could get a little static as investors wait for the next shoe to drop. That’s barring any more dramatic headlines on COVID or politics, obviously. Remember, President Trump is still sick, even if he is back home. That’s something that could keep investors on their toes and affect market volatility. 

The Cboe Volatility Index (VIX) flirted with 30 yesterday, and a move above that might reinforce concerns about potential stock selloffs. However, this morning volatility eased a little for the first time in a while. 

Meanwhile, that little Treasury yield bounce from earlier this week got snuffed out pretty quickly yesterday, reflecting the likely fact that it was based on stimulus hopes. The 10-year yield jumped again early Wednesday, however, and recently stood at 0.78%. 

CHART OF THE DAY: CRUDE’S STILL RUNNING. After a few up days, crude oil futures (/CL – candlestick) are still holding on above $40 per barrel (yellow line). It’s also fighting against resistance of its 50-day moving average (blue line). Data source: CME Group. Chart source: The thinkorswim® platform from TD AmeritradeFor illustrative purposes only. Past performance does not guarantee future results.

Watching the Numbers Roll In: The president’s diagnosis with COVID-19 reminds us of the likelihood the virus count could spin higher as the weather cools. There were around 42,000 new cases reported in the U.S. on Monday, according to The New York Times, with case numbers still high but generally below their peak spring and summer levels. The daily data are probably going to continue to get close monitoring from Wall Street in coming weeks, and any regular rise above 50,000 might get a fish eye. Cases are rising in two-thirds of U.S. states, according to media reports. 

One good way to track the impact on the economy is the daily Transportation Security Administration (TSA) travel data. On Oct. 4, the number of people passing through TSA travel checkpoints was 900,000, down from 2.5 million on the same weekend day a year ago. That translates into roughly 36% of the year-ago level. There were some days in early September when travel levels approached 50% of a year earlier, but it’s been a while since we’ve seen that. Any sign of levels coming back toward 50% or better would probably feel like a tailwind for the economy. 

Still Working in Pajamas? Ideas that we might be stuck at home longer could help explain recent rallies in stocks like Zoom Video Communications Inc (NASDAQ: ZM), Docusign Inc (NASDAQ: DOCU), and Peloton Interactive Inc (NASDAQ: PTON). When the virus started, many of us talked about how we’d be in the office by September. Then it was maybe October, and now people are talking about the end of the calendar year.

If it gets pushed to next spring or summer it means more of  a commitment dollar-wise. The third or fourth wave of adopters will come in, meaning companies and individuals who’d put off doing things the new way will probably decide they can’t wait any longer. 

If shutdowns last, it’s bad for most people, but good for some Tech companies. They might see benefit from holdouts who thought they wouldn’t have to spend on Tech solutions that allow people to work from home. These holdouts can sometimes be the harder sale, but can be most sticky over time. They tend to hate change, but when they finally do make transitions they stay, and it can become an amazing opportunity for companies that offer solutions.

Despite Payrolls, Some Signs of Hope: Last week’s disappointing payrolls report is only the latest reminder that the economy isn’t out of the woods. Having said that, there are some positive breezes blowing. First of all, a lot of the recent data looked pretty good. That includes both the manufacturing and non-manufacturing ISM numbers over the last week, as well as the Chicago PMI. You could argue that it’s easy to cherry-pick data to tell a story, but Wall Street analysts quoted in various media outlets over the last few days generally seem to like what they’re seeing from many recent economic reports. 

They also like some of the early earnings readings. While earnings season doesn’t officially hear the opening bugle until banks begin reporting next week, both PepsiCo, Inc. (NASDAQ: PEP) and Bed Bath & Beyond Inc. (NASDAQ: BBBY) impressed with their results, and Q3 earnings estimates have generally been trending higher, Barron’s reported. They also quoted a JPMorgan Chase & Co. (NYSE: JPM) analyst who said he expects to see Q3 earnings come in above expectations as corporate balance sheets generally improve.

Another JPM analyst told CNBC early this week that analysts measuring the potential impact of a possible change in presidential administrations found about an even impact on projected earnings for next year. The potential negative impact from conceivably less corporate-friendly tax policy would probably get roughly balanced by a possible detente in China trade relations and potential infrastructure spending under a new administration, the analyst said. 

TD Ameritrade® commentary for educational purposes only. Member SIPC.

Photo by Alev Takil on Unsplash

 

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