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Stock market books 4th straight gain ahead of earnings kick off

U.S. stock benchmarks finished sharply higher Monday as investors bought technology giants and shifted their focus to corporate earnings starting this week. The moves come against the backdrop of the looming U.S. presidential election and stalled talks for another round of coronavirus stimulus.

Meanwhile, the bond market were closed Monday in observance of the Columbus Day holiday, also celebrated by many as Indigenous Peoples’ Day.

How did major benchmarks perform?

The Dow Jones Industrial Average
DJIA,
+0.87%

rose 250.62 points, or 0.9%, to 28,837.52, supported by gains in Apple Inc.
AAPL,
+6.35%

and Microsoft Corp.
MSFT,
+2.59%
.
The S&P 500
SPX,
+1.64%

added 57.09 points, or 1.6%, to 3,534.22 while the Nasdaq Composite
COMP,
+2.55%

climbed 296.32 points, or 2.6%, to 11,876.26. It was the fourth straight day of gains for all three benchmark indexes.

What drove the market?

With less than three weeks to the presidential election, investors are now focusing on the outlook for the Democratic Party controlling both the White House and Congress.

Though analysts initially viewed a Democratic victory as an impediment to further equity gains, market participants argue a large stimulus package could be in the cards next year if former Vice President Joe Biden, who has a large lead over Republican incumbent Donald Trump in the polls, presided over a landslide win in the November elections.

“In the past two weeks this narrative has completely flipped, to the point where investors now view a Blue Wave as being a catalyst for a reflation trade,” said Solita Marcelli, Americas chief investment officer at UBS Global Wealth Management, in a note.

Don Calcagni, chief investment officer with Mercer Advisors, agrees. “The technology sector
XLK,
+2.72%

is doing well today, rather than value
VOOV,
+0.62%
,
and that is indicative of the fact that the market is not expecting a stimulus package before the election,” he said in an interview.

Calcagni believes the economy should be able to hold out a few more months without additional fiscal aid, but calls the first and second quarters of 2021 more of a question mark — especially given questions about vaccine availability and delivery.

“I think where the market wants and needs to go is toward lower-priced value and higher-quality stocks,” he said.

Read: Stocks are rallying because fears of a contested election are fading

Prospects for another fiscal stimulus package appeared to dim, as Democrats over the weekend rejected a $1.9 trillion proposal from Treasury Secretary Steven Mnuchin, representing the Trump administration’s most generous aid proposal thus far.

“This past week, the president demonstrated very clearly that he has not taken the war against the virus seriously, personally or nationally. This attitude is reflected in the grossly inadequate response we finally received from the administration on Saturday,” wrote Democratic House Speaker Nancy Pelosi wrote in a Sunday letter. “Until these serious issues are resolved, we remain at an impasse.”

During an interview with Fox News, President Donald Trump cast Pelosi as a point of resistance in getting additional help for out-of-work Americans and troubled businesses. “Republicans want to do it. We’re having a hard time with Nancy Pelosi,” he said Sunday.

On-again-off-again negotiations over additional stimulus have been one of the main catalysts for the markets over the past few months.

A lack of fresh aid is forcing investors to turn to the next round of corporate earnings and the elections.

Read: Financial markets have waited patiently for a stimulus package — that might change soon

S&P 500 companies’ overall earnings performance are expected to be less-bad than the second quarter, when earnings fell the most since the 2008 financial crisis, according to FactSet data.

The aggregate blended year-over-year growth estimate per share, which includes some earnings already reported and the average analyst estimates of coming results, is for a negative 20.5% as of the end of last week, following a 31.4% plunge in the second quarter.

Investors may be more focused on the rate of change in the decline, rather than how far earnings are falling, MarketWatch’s Ciara Linnane and Tomi Kilgore report. Large banks, Citigroup
C,
+2.11%

and JPMorgan Chase & Co.
JPM,
+1.22%
,
unofficially kick off third-quarter earnings season Tuesday morning.

Separately, the spread of the COVID-19 pandemic in Europe was forcing some reimplementation of lockdown measures. U.K. Prime Minister Boris Johnson was expected to outline the restrictions in a statement to the public on Monday.

In Asia, China’s equity market were ebullient on optimism that President Xi Jinping is planning to further open parts of the economy to outside investment.

Which companies were in focus?
  • Bandwidth Inc.
    BAND,
    +5.28%

    shares were up 4.8% after it announced Monday an agreement to buy Europe-based cloud communications company Voxbone.

  • Shares of Twilio Inc. TWLO jumped 7% after the communications software company announced a deal to buy customer data platform company Segment in a $3.2 billion stock deal.

  • Apple Inc.
    AAPL,
    +6.35%

    shares rose more than 6% ahead of its iPhone launch event on Tuesday.

  • Shares of Mallinckrodt Plc
    MNK,
    -31.19%

    tumbled 31.2% in trading on Monday following the company’s announcement that it had filed for Chapter 11 bankruptcy.

  • Shares of Carnival Corp.
    CCL,
    -3.05%

     shed 2.7% after the cruise operator said it has decided to cancel the remaining cruises that operate from PortMiami and Port Canaveral for November.

  • DraftKings Inc.
    DKNG,
    +3.64%

    shares added more than 4% after an analyst price-target increase.

What did other markets do?

Mainland Chinese stocks jumped, with the Shanghai Composite
SHCOMP,
-0.47%

rising 2.6%. Japan’s Nikkei 225 index
NIK,
-0.17%

fell 0.3%, while Hong Kong’s Hang Seng Index
HSI,
+2.20%

 gained 2.2%.

The pan-European Stoxx 600 Europe Index
SXXP,
+0.71%

closed up 0.7%, while London’s FTSE 100
Z00,
+0.14%

gained 0.3%.

Oil futures
CL.1,
+0.02%

fell $1.17, or 2.9%, to settle at $39.43 a barrel on the New York Mercantile Exchange, notching its lowest close in a week as production ramped back up across the globe. With investors embracing riskier assets, gold
GOLD,
-0.03%

 rose $2.70 or 0.1% to settle at $1,928.90 an ounce on Comex.

The ICE U.S. Dollar Index
DXY,
+0.13%
,
 a measure of the greenback against its major rivals, was virtually flat.


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