Deadline Looming: Fiscal Stimulus Showdown Dominates Scene Early, But Netflix Waits In Wings

We’ve all had that dream of missing a deadline, whether it’s about an overdue high school term paper or forgetting to roll an expiring options position. The market is deadline-focused today as Congress faces what could be its final chance to get some sort of stimulus passed before the election. 

The deadline, imposed by House Speaker Nancy Pelosi, probably weighed on stocks during yesterday’s ugly session as comments out of Washington didn’t lend much cheer. The market’s taken a big downturn since last week’s optimism, meaning if there’s good news from the capitol today, stocks may have some upside room. 

The market looks a little healthier this morning after yesterday’s ugliness as it seems like today may be the final showdown for stimulus. It’s kind of like deja vu all over again, as baseball great Yogi Berra said, because yesterday began the same way before pessimism took over. Pelosi and Treasury Secretary Steven Mnuchin reportedly narrowed some of their differences in recent conversations, media outlets reported, so we’ll see if they can get something done. 

However, in action ahead of the opening bell the major indices pulled back slightly from earlier big gains. Volatility is slightly lower, which might be a good sign, but the Cboe Volatility Index (VIX) did peek above 29 overnight, near the high end of its recent range. This could suggest investors need to consider taking extra care in the market today.

Stream On: Netflix Earnings Ahead

A bunch of earnings are scheduled to hit the tape today, but maybe none will get as much attention as Netflix Inc NFLX, the first FAANG to step to the plate this season. NFLX is scheduled to report after the closing bell. 

Arguably, the most pressing issue is membership growth. NFLX delivered jaw-dropping new subscriber numbers in the first half of the year but warned investors those rates are unsustainable and to expect a significant slowdown in the second half. 

As of the end of the Q2, NFLX’s total global subscriber base sat north of 192 million, some 73 million of which were from the U.S. For Q3, NFLX previously issued new subscriber guidance of 2.5 million. So that’s the number to beat. 

Earnings last night from IBM IBM looked disappointing as it reported a third straight quarter of declining revenues, but Procter & Gamble Co PG shares are on the move this morning after a killer earnings report. Snap Inc SNAP is also on tap after the bell today. That stock has been on a tear, and internet advertising trends will probably be in focus when it reports. 

As earnings from NFLX today and Tesla Inc TSLA tomorrow take the spotlight, remember that guidance from all S&P 500 companies arguably means more than ever. A lot of analysts have basically written off 2020, so what do companies have to say about their 2021 outlooks? It could mean more than a look back at Q3 earnings in a lot of cases.

Shades Of September For Big Tech

Speaking of deja vu, it feels like September again for the Tech sector, which isn’t a good thing. It fell nearly 2% on Monday and the Nasdaq (COMP)—where most of the mega-cap Tech companies live—is down 4% from last week’s highs. 

While every sector got victimized Monday (and Energy took the biggest hit as hopes for a stimulus sagged), it’s interesting that Tech was one of the major losers. That’s kind of a head scratcher when you think of what some analysts said last week about Tech having more overseas exposure than many other sectors and having less exposure to failed efforts to revive the domestic economy.

It’s possible we’re just seeing some caution creep in ahead of the election, with investors picking on the sector where valuations tended to be highest most of the year. And given the run Tech’s been on these past six months, from a “taking some profits off the table” standpoint, Tech is where a lot of those profits were generated.

This followed Tech actually eking out a gain last week. Monday didn’t feel good if you had big exposure to the sector, but it was one day. No single day is a trend, and here we are back for more trading. 

If there’s more pressure today on the SPX, support might be hanging out near 3400. That’s the exact 50-day moving average through Monday. For the Nasdaq 100 (NDX), support could lie in a range between 11,225–11,495, according to research firm CFRA. 

Airline Investors Celebrate A Million Times

Yesterday was a rough day for stocks in general. However, one sector bucked the trend and it goes to show you the power of a single number. 

It’s thanks a million for airline stocks to start the week. A million passengers passed through Transportation Security Administration (TSA) checkpoints on Sunday, the first “million” milestone since March 16. Putting things in perspective, it only represented 40% of the passenger traffic from the same weekend day a year ago.

Still, it’s pretty impressive how this metric steadily clawed back from the spring lows. There were a bunch of days last April when TSA checkpoints tallied fewer than 100,000 people, including just 87,534 on April 14 when shutdowns were reaching their zenith. A typical day before the pandemic averaged well above two million. 

Keep an eye on TSA numbers to see if Sunday was a fluke or had staying power. We talked months ago about the “middle seat conundrum,” meaning when would people start feeling safe sitting next to someone on an airliner. For a few people over the weekend, it seems like that might have happened. 

Joining Forces

In other corporate news to start the week, there were some merger and acquisition (M&A) murmurings. Sometimes this can be positive news because it reflects companies feeling like they can spend money as they sense opportunity. Other times, particularly in struggling sectors like Energy at the moment, M&A can be a defensive move. 

One piece of the M&A pie Monday was Concho Resources Inc CXO confirming it will be acquired by ConocoPhillips COP in an all-stock transaction valued at $9.7 billion. Shares of both firms are down sharply year-to-date as demand for U.S. shale (CXO’s specialty) has crumbled. They could be combining forces to make both companies stronger. “Sector consolidation is both necessary and inevitable,” COP’s CEO told analysts, according to The Wall Street Journal. 

M&A activity continued with chipmaker Intel Corporation INTC entering a $9 billion agreement to sell its NAND memory unit to SK Hynix (HXSCL), a South Korean firm, The Wall Street Journal reported. The INTC unit makes NAND flash memory products mainly used in devices like hard drives, thumb drives and cameras. INTC has been weighing getting out of the business for some time, driven by sagging prices for flash memory.

On Friday we mentioned that the NYSE FANG+ Index ($NYFANG) was trading within an ascending triangle. Although there was a chance the index would break out above the triangle and continue its upward trend, it was trading closer to the lower side of the triangle. Yesterday, $NYFANG broke below the upward sloping trendline closing at 5516, near its low of the day. The next support level could be its 50-day moving average at 5303. It’s worth keeping an eye on this index since it’s made up of stocks that tend to be more favored among many investors.

CHART OF THE DAY: COULD WE SEE CONTINUED SELLING IN FAANGS? The NYSE FANG+ Index ($NYFANG–candlestick) is made up of stocks in the Tech and Consumer Discretionary sectors that are well liked by investors and traders—Facebook, Inc. FB, Apple Inc. AAPL, Amazon.com, Inc. AMZN, Netflix Inc NFLX, and Alphabet Inc GOOGL. The index just broke below the upward trendline (yellow upward sloping trendline) that forms the bottom side of what could have been an ascending triangle. Next support level to keep an eye on is the 50-day moving average (blue line). Data source: ICE Data Services. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.  

Survey Says! The old joke is if you want seven opinions on where the economy is going, ask three economists. There’s some truth to that, because economists and stock market money managers by their very nature have to look at best- and worst-case scenarios. Still, a Barron’s survey of money managers released over the weekend showed most remain at least neutral if not bullish about the direction of the stock market over the next year. 

A majority (54%) of the 137 U.S. money manager respondents said they’re bullish on stocks for the next 12 months, 33% said they were neutral, and only 13% described themselves as bearish. Breaking things down a little more, 64% said equities are the most attractive asset class, with gold a distant second at 11%. Also, the respondents tended to be bullish on the domestic market, with 43% saying U.S. stocks are going to be the best performer over the next 12 months vs. 27% saying emerging markets and 15% saying China. 

Money Managers Outline Favorite Sectors: Barron’s also asked money managers to choose the S&P sectors they think will do best over the next 12 months. That’s where the old joke about getting different opinions comes into play. About 25% of respondents said Technology will do best over the next six months, but almost the exact same percentage (24%) said Tech would do the worst. Other sectors drawing bullish votes included Health Care, Industrials, Consumer Discretionary, and Energy. But 24% of respondents said Energy would be the worst performer over the coming six months, with another 24% saying Tech would dwell down in the cellar. Others drawing a large number of “worst” votes included Financials, Utilities, and Real Estate. 

Asked which stocks were their favorites, respondents came up with a list that looks like an ad for FAANG investing. Amazon.com, Inc. AMZN, Apple Inc. AAPL, and Alphabet Inc GOOGL formed the top three. 

Old Nemeses Back in Town: With so many other things to worry about, it’s easy to forget how concerned investors were a few years ago about North Korea. Back then, the market actually had some rough days based on fears of an escalating situation involving the country’s missile tests and verbal jousting between North Korea and the U.S.. 

Well, maybe it’s time to remember how this can affect Wall Street, because North Korea jumped back into the news recently by parading its newest intercontinental ballistic missile, which military analysts described to the media as being larger than any they’d seen before from the country. One analyst told The New York Times that North Korea is biding its time until the U.S. election, but expects them to escalate their “provocations” after Nov. 3. It’s something to keep in mind, as geopolitics always have the potential to upset markets. 

Speaking of which, another old nemesis called “Brexit” popped back into the headlines last week. Some analysts are now again bringing up the chance of a possible “no-deal Brexit,” which could be weighing on the euro and pound and pushing up the dollar.

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

Photo by Caleb Perez on Unsplash