The stock market generally moves up or down based on investors' expectations for the future. The market performance in October, with the major indices taking their biggest weekly losses since March, suggests the future looks cloudy.
The fall in inventories in October was also not unique to the US, and is likely to continue into November. Global markets are struggling to cope with a series of headwinds – the possible outcome of the economic uncertainty, a Wednesday, Thursday and Friday in the US
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Still, the key questions will take longer to answer: How serious will the latest wave of coronavirus prove to be? And how long does it take for an effective vaccine to be widely available?
Mercurial Markets Through 2020
This year's action in the mercury market is by far the most dramatic since the 2008-09 financial crisis. "I don't remember a time when I saw anything like us," Henry Kravis, co-CEO of buyout giant KKR, recently told Bloomberg Television.
The major averages fell for the second month in a row, with a decline of 2.8% and an index of 2.3%.
DJIA October 2020, 300 minute chart
The slumped 4.6%. The Index, a concentrated list of the largest NASDAQ non-financial stocks, fell 3.2%.
Most of the market losses came after October 12, as the third quarter earnings season kicked off and concerns escalated about the outbreak of a second wave of the pandemic.
The loss of the NASDAQ 100 between October 12 and the end of the month was 8.6%, compared to 8.1% for the Dow, 7.4% for the S&P 500 and 8.1% for the NASDAQ .
Finally, the S&P 500 was down 5.6% in the last week of October, with the Dow down 6.5% and the NASDAQ down 5.5%, their largest weekly losses since the week of March 16, when the stocks in fact melted over fear of the coronavirus. .
Market turned negative in September
The declines seen in October are part of another trend that started after September 2, when the S&P 500 , NASDAQ, and NASDAQ 100 indices all hit new highs, driving sell signals from technical indicators such as relative strength indices.
Gains over the summer were fueled by soaring prices in stocks such as Apple (NASDAQ :), Tesla (NASDAQ :), Amazon.com (NASDAQ :), Zoom Video Communications (NASDAQ 🙂 and Google parent company Alphabet (NASDAQ). :). In addition, there was a red-hot market for IPOs.
But traditional retailers, restaurants and cinema chains, plus energy companies, especially coal companies, suffered and will continue to struggle until recovering now below $ 40 a barrel.
The S&P 500 fell more than 35% between mid-February and mid-March. It jumped 63% between the March low and the September 2 peak. The index was up about 11% for the year on September 2. But the drop has caused the broad benchmark to drop to just + 1.2% YTD.
The earnings of the NASDAQ 100 since the September 2 shutdown were 42.2%. That has now been reduced to 26.6%.
Apple stock is down 21% after hitting its 52-week high of $ 137.98 on September 2. The stock fell 6% in October after a loss of 10.25% in September.
Tesla was down 9.6% in October, ninth worst performance among NASDAQ 100 stocks, but it's still up nearly 364% for the full year, good for second place overall – after up 577 , 4% of Zoom Videos.
Moreover, it is not yet clear that the market has bottomed out. Futures trading at the time of writing suggests a modest positive opening on Monday. What is more likely is that a final election result could trigger a rally.
Boeing remains a major problem for the Dow
The megacap Dow has continued to struggle this year, despite the presence of Apple and Microsoft (NASDAQ :), two of the most valuable companies in the world.
The index was positive – albeit barely – on September 2 and has struggled ever since. It ended up 7.1% lower than the year in October.
The Dow's biggest obstacle remains aviation giant Boeing (NYSE :), which continues to struggle on two fronts:
Getting the 737 MAX jetliners to the ground and flying again.
Rebuilding his order book. The pandemic has eroded everything but the most essential of travel.
The Chicago-based company said last week that it will cut 31,000 jobs by the end of 2021, after reporting $ 466 million, compared to a profit of $ 1.2 billion a year ago.
Stocks fell 12.6% in October and fell nearly 56% for the year, the worst of the 30 Dow stocks. Boeing's stock fell more than two-thirds of their all-time high of $ 446.01, reached in early 2019 before the second crash of the 737 MAX forced regulators to ground the plane.
The Dow has also been pressured by Intel (NASDAQ :). The chip maker is down 14.5% in the month and 26% in the year after revealing a surprising weakness in the company's data center business.
Awaiting a COVID-19 Vaccine
During the month the market was regularly plagued by negative and positive news about when a vaccine will be available . Despite President Donald Trump's claims that a viable vaccine is close by, most experts believe one or more vaccines will only receive FDA approval with an emergency use license, perhaps no sooner than the end of the year. The production and distribution of billions of doses will then take several months.
Research and clinical trials have also resulted in some interruptions because of unexpected problems.
As a result, related pharma and biotech stocks have been and will remain choppy. Moderna (NASDAQ 🙂 fell 4.6% in October, but continues to rise 245% this year. Pfizer (NYSE 🙂 and AstraZeneca (NYSE 🙂 haven't moved much, even though both companies are thought to be the closest to a vaccine.
Shares of Gilead Sciences (NASDAQ 🙂 hit a 52-week low of $ 57.04 Thursday on Thursday after the company cited lower-than-expected demand and the sale of remdesivir, the only COVID-19 treatment available in the United States approved, is difficult to predict. Conditions for patients who are currently hospitalized. While the stock rose slightly on Friday, it was down 8% in October and down 10.5% in 2020.
FedEx, UPS should continue to see strong results
The big question facing the stock market going forward is when a sustained economic recovery will take place. Democrats and Republicans were unable to agree on a second major stimulus package before the election, which contributed to the sale at the end of the month.
Before disappointment struck, transportation supplies that could benefit from increased consumer demand for goods were making solid strides. The average (DJT) rose in the second and third quarters, briefly hitting a record high on October 20, before month-end sales pushed the index down 1.1%. Transports are still up 1.88% this year.
This segment is led by FedEx (NYSE 🙂 and United Parcel Service (NYSE :). Both shipping companies saw demand for delivery services explode during the pandemic. That will likely remain strong as the number of COVID-19 cases continues to rise.
FedEx was up a modest 3.2% in October, while UPS was down 5.7%. For the year, however, shares of FedEx and UPS are up 71.6% and 34%, respectively.
Airline stocks remain weak due to the collapse of travel. The NYSE Arca Airline Index rose a modest 1.6% in October and is currently down 48.3%. Delta Air Lines (NYSE 🙂 rose a modest 1% in October, but is now down 47% for the full year.
Energy Problems
Energy supplies remained under the weight of low and prices. West Texas Intermediate (WTI) crude oil fell 11% to $ 35.79 a barrel in October and is down 41% this year. , the global benchmark, fell 10.3% and is also down more than 41%.
Chevron (NYSE :), the last of the oil giants still listed on the Dow, was down 3.5% on the month and is down 42% since the start of the year. Exxon Mobil (NYSE 🙂 is down 5% and down 53%. The drop in oil prices is forcing many smaller companies to find merger partners or buyers – or seek bankruptcy protection.
The housing stock cools down
Shares of homebuilders and the shares of related companies cooled in October after large gains in the spring and summer quarters.
The iShares Dow Jones Us Home Construction ETF (NYSE 🙂 fell 8.2% in October after six months of profit. Investors had bought heavily into the exchange-traded fund and builder's shares as well, as families wanted to leave the cities to escape the pandemic to hide with more space.
The catalyst for the decline in these stocks may have been a Department of Commerce report on Oct. 26 showing that it fell in September, but not much. A more important question may be whether the devastation caused by the pandemic is limiting the number of potential buyers.
Interest rates shouldn't be a problem. Friday it was about 0.86%, up from 27% in October. That should yield a 30-year mortgage interest rate of 2.6% to 2.8%.
Residential building and construction activities were a catalyst for construction equipment manufacturer Caterpillar (NYSE :), whose shares were up 5.3% this month, second only to commercial and personal property insurance company Travelers (NYSE :), up by 11.6%.
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Which markets need it most right now
Businesses and investors are particularly of the opinion that they need clarity about the domestic and global economy – that the rules are clear that the political world is stable, that the coronavirus can and will be brought under control.
Volatility has been the only market constant for the past two years, with huge gains suddenly swept away by bad news about China's trade talks, the pandemic, an oil price collapse and even a presidential impeachment.
If you look to the future, you might see it in, and, prices of which have been fairly strong for most of the year, reflecting the hope for an industrial revival.
Transportation and logistics will be critical pieces of the puzzle in the future, and will likely make FedEx and UPS solid power choices. Railways, particularly Union Pacific (NYSE :), will also be important, especially if car sales and home construction remain decent.
