Dow ends nearly 100 points lower as fiscal stimulus talks remain key focus

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October 22, 2020
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October 22, 2020

Dow ends nearly 100 points lower as fiscal stimulus talks remain key focus

U.S. stock benchmarks closed lower Wednesday, as investors looked to Washington for signs of progress that a fiscal stimulus deal might materialize before the Nov. 3 election.

Drama playing out between members of Congress and the White House over additional pandemic aid overshadowed modestly positive economic data from the Federal Reserve and fresh corporate earnings.

How did major benchmarks fare?

The Dow Jones Industrial Average DJIA, 0.06%  shed 97.97 points, or 0.4%, to end at 28,210.82, while the S&P 500  SPX, 0.08% fell 7.56 points, 0.2%, closing at 3,435.56. The Nasdaq Composite  COMP, 0.00%  finished 31.80 points lower, or 0.3%, at 11,484.69.

The Dow on Tuesday rose 113.37 points, or 0.4%, to finish at 28,308.79, after rising as high as 28,575.03 earlier in the day. The S&P 500 added 16.20 points to end at 3,443.12, a gain of 0.5%, while the Nasdaq Composite advanced 37.61 points or 0.3%, to 11,516.49.

What drove the market?

Stocks closed lower Wednesday after struggling for a direction for much of the session as investors looked to Washington for updates on fiscal stimulus talks, which largely overshadowed fresh corporate earnings and slightly positive economic data.

The Federal Reserve’s Beige Book released Wednesday for early October showed that most regions of the U.S. continued to show slight to modest growth in economic activity.

“There were no negative bombshells,” Peter Cardillo, chief market economist at Spartan Capital, told MarketWatch, said of the Fed’s survey, but adding that the spotlight mostly was on Washington.

“The market is totally focused on a further aid package and really not paying as much attention to earnings, which, so far, haven’t been all that bad,” Cardillo said.

He did point to higher 10-year Treasury yields and the dollar’s decline on Wednesday that might suggest the U.S. sees “some sort of announcement” on a stimulus package soon.

Senate Majority Leader Mitch McConnell, R-Ky. reportedly urged Republicans and the White House against striking a big coronavirus deal with Democrats before the Nov. 3 election, according to news reports.

But both sides played down the need for a vote before Election Day, after House Speaker Nancy Pelosi, D-Calif., and U.S. Treasury Secretary Steven Mnuchin engaged in further negotiations Wednesday.

“I don’t think the Senate, in the end, will defy the White House” if Mnuchin manages to reach an agreement with Pelosi, said John Carey, director of equity income at Amundi Pioneer, in an interview.

But Carey also warned of ongoing jitters as parts of Europe and the U.S. go on high alert amid rising COVID-19 infections and the arrival of colder weather. And the election remains just around the corner.

“The markets are so focused on the election, but this is what’s driving the day-to-day,” said Keith Lerner, chief market strategist for Truist/SunTrust Advisory Services, said of stimulus talks. “I don’t think it’s fatal to the economy to wait until after the election.”

“The markets are so focused on the election, but this is what’s driving the day-to-day,” said Keith Lerner, chief market strategist for Truist/SunTrust Advisory Services, said of stimulus talks. “I don’t think it’s fatal to the economy to wait until after the election.” But he also sees any volatility as a good opportunity to buy on any dips, and possibly to start rotating toward cyclical sectors like industrials XLI, 0.55% and materials XLB, -0.20%.

U.S. corporate earnings reporting season remains in full swing as well. Results from closely watched Netflix Inc. NFLX, -0.89% disappointed investors after Tuesday’s closing bell, reflecting a slowdown in new subscribers and a wide miss on earnings. Shares in the video streaming giant closed down 6.9%, but still up more than 50% in the year to date as pandemic lockdowns fueled demand.

Several Federal Reserve officials also spoke Wednesday. Gov. Lael Brainard, in remarks to the Society of Professional Economists in the U.K., said the U.S. would be in for “a slower and weaker recovery” if Congress failed to pass another aid package.

Later, Cleveland Fed President Loretta Mester said the central bank could do a better job of communicating its policy goals to the general public.

Which companies were in focus?

How did other markets trade?

In global equities, the Shanghai Composite SHCOMP, -0.37% closed down 0.1%, while Hong Kong’s Hang Seng Index HSI, +0.12% gained 0.8% and Japan’s Nikkei 225 Index J NIK, -0.69% advanced 0.3%. The pan-European Stoxx 600 Europe SXXP, -0.10%  closed down 1.3%, while London’s FTSE 100 UKX, 0.03%   slid 1.9%.

Oil futures closed lower, with the U.S. benchmark CL00, 1.57%  down $1.67, or 4%, to finish at $40.03 a barrel. Gold futures GCZ20, -1.30%  finished up $14.10 or 0.7%, at $1,929.50 an ounce.

The ICE U.S. Dollar Index DXY, 0.33%,  a measure of the currency against a basket of six major rivals, was down 0.5%.

The yield on the 10-year Treasury note TMUBMUSD10Y, 0.826%  was 1.9 basis points higher at 0.815%, near its highest since June 9 on stimulus hopes. Yields and bond prices move in opposite directions.