It was a rough week for stocks as the response to earnings news was lackluster and headlines about the surge in Covid cases continued. It would have been much worse if there had not been constant rumors about the potential for a fiscal stimulus deal. For four days in a row now House Speaker Nancy Pelosi has made vague comments about how a deal is progressing and could occur soon.
Although there seem to be some formidable hurdles to a fiscal deal before the election, these hints of a deal have been sufficient to prevent more aggressive selling from developing. No one wants to miss a spike on the announcement of an agreement but you can't help but wonder if will generate sustained momentum. As I discussed here the potential for a "sell the news" reaction into the election is quite high if a deal is made.
The biggest obstacle the market faces for the next 10 days or so is concern that the election will be too close to call and no clear winner. That sort of uncertainty will not be healthy for stocks. It is likely that many folks are already planning to move to the sidelines and wait for the smoke of the election to clear.
Earnings season accelerates next week. All the FATMAAN stocks report except Tesla (TSLA) and that is going to be an interesting setup with the election hitting the following Tuesday. If there is no sell the news reaction to fiscal stimulus then maybe earnings reports will be a catalyst for more profit-taking.
This is a very tricky market environment right now but the good news is that many individual stocks are still in good shape and should resume their uptrends once the macro headlines start to fade away.
Have a great weekend. I'll see you on Monday.