The Final Countdown (stimulus and election), Pelosi Optimism, Fed's Evans says they could do more, Do not pass go Google

US stocks are climbing higher as earnings season picks up and on hopes that the election will pave the way for larger stimulus than what is being discussed right now.  House Speaker Pelosi’s stimulus deadline initially seemed unlikely to yield a breakthrough, but Republicans seem to be making some large concessions. A lot needs to go right for a deal to get done this week and the biggest hurdle might come from Senate Republicans.  The 3pm Pelosi-Mnuchin phone call will be the make or break moment for this week.  

If this last attempt at fiscal stimulus fails, this election will not just be a referendum on President Trump’s handling of the coronavirus but also the need for further stimulus for millions of Americans and small businesses.  Wall Street also knows the Fed has their back and while they can’t cover the fiscal shortfall in the short-term, they will remain ultra-accommodative over the next couple of years.  With two weeks until election day, investors will closely watch the polls to see if financial markets will continue to start pricing in a blue wave. 

Equities extended their gains after Fed's Evans reminded markets that the Fed could do more bond buying at a faster pace.  

Earnings

The focus this earnings season is all about the outlook.  Despite strong earnings beats from IBM and Lockheed Martin, investors are hitting the sell button due to weak outlooks for the next year.  IBM can’t seem to deliver revenue growth and with investors preferring cloud solutions from Microsoft and Amazon, they seem like they will be one of the first tech unwind bets. 

Lockheed Martin

Procter & Gamble delivered your textbook COVID play with a strong earnings report and raised guidance that was boosted by pandemic fueled demand.  P&G will continue to thrive over the next few quarters as the northern hemisphere continues to struggle with the coronavirus. 

Netflix

Netflix is expected to deliver strong results, but the outlook will take a hit as the competition increases and once a couple of vaccines become readily available. 

Google

The US filed the most significant antitrust lawsuit in decades against Google.  Investors have widely been expecting the US Justice Department to file a monopoly case against the search-engine giant.  The initial reaction surprised some as the stock climbed higher.  Alphabet shares have underperformed most of the other mega-cap tech stocks over the past couple of years, so the initial reaction higher was somewhat justified. 

The lawsuit will make Google feel like they are in Litigation Valley but will not derail many long-term investors.  This antitrust lawsuit will likely be drawn out for years and have less of a short-term impact when compared to the presidential election’s potential changes to corporate taxes and regulation.

Oil

Crude prices jumped higher after House Speaker Pelosi voiced optimism Republicans have come a long way in securing a stimulus agreement.  Oil prices are not getting any favors from diminishing crude demand outlooks due to rising coronavirus cases across North America and Europe. 

The OPEC+ production cut agreement will go through another tough test if new COVID-19 cases continue to soar and raise oversupply concerns.  Iraq and Russia have already begun posturing for the critical decision on whether OPEC+ should go forward with increasing production by 2 million bpd in January.  Iraq’s oil minister noted OPEC cuts are slowing down oil projects and that they expect to boost production by 2 million bpd over the next five years.  Russian energy minister Novak said it was too early to speak about the future of the OPEC+ deal. 

WTI crude is approaching the top of its tight trading range and will quickly give back most of these gains if stimulus talks falter. 

Gold

House Speaker Pelosi’s stimulus optimism gave a boost to gold prices.  Gold will be supported by stimulus; the size and the timing still remain the biggest question marks. Gold’s safety net remains the Fed's unprecedented monetary efforts.  Fiscal support was supposed to be the icing on the cake for gold's path back towards $2000.  For gold to breakout higher, over $2 trillion in stimulus needs to be passed before the election.  Gold’s bullish medium-term outlook remains firmly intact due to surging virus cases across the northern hemisphere.  North America and Europe will need to step up their efforts as the virus spread seems destined to bring back restrictive measures that will cripple economic activity.