The Past Week, In A Nutshell - What Happened

Last week ended positive alongside vaccine optimism and a retail sales beat.

Remember This

“Regardless of who may win the election, we think the continued economic rebound will support future equity gains,” said Ryan Detrick, chief market strategist at LPL Financial. “Further, we don’t think it is wise to base long-term portfolio decisions on the outcome of an election. In similarly polarizing elections in 2008 and 2016, investors who maintained their stock allocations were rewarded with future gains.”

Pictured: Profile chart of the Micro E-mini S&P 500 Futures

Technical

Broad-market equity indices ended the week higher, with the S&P 500 retracing more than 80% of its September sell-off.

Recapping Last Week’s Action: 

Alongside fiscal stimulus hopes, U.S. index products surged past and built value above a major high-volume concentration as initiative participants (i.e., those buying within or above prior value) showed continued confidence in exploring higher.

As the week progressed, however, Johnson & Johnson (JNJ) suspended its vaccine trials and expectations regarding further stimulus tempered. The weakness was exacerbated by the prior week’s emotional activity which attracted an enormous amount of speculative derivatives activity and left behind poor structures that offer little-to-no support. As the monthly options expiry neared and dealers unwound their hedges, the market endured a quick correction of the poor structure.

Overall, the market remains out of balance and high. Barring some exogenous event -- such as negative news regarding added stimulus, vaccine progress, and the election -- there is good potential that the market continues exploring higher with an obvious target being, in reference to the S&P 500, the prior all-time-high.

Fundamental

In its 2020 World Economic Outlook, the International Monetary Fund (IMF) raised its expectations on global growth, but cut long-term forecasts on a slower recovery.

"The scarring is expected to compound forces that dragged productivity growth lower across many economies in the years leading up to the pandemic — relatively slow investment growth weighing on physical capital accumulation, more modest improvements in human capital, and slower efficiency gains in combining technology with factors of production,” the report said.

Adding, according to Axios, the hard part of the recovery is just beginning; the IMF is urging governments to keep financial lifelines open; "I worry most about withdrawing support to workers and firms prematurely because it could cause a wave of bankruptcies and massive increase in unemployment," IMF head Kristalina Georgieva said during a media appearance.

Key Events

• Monday, October 19: Fed Chair Powell Speech, Fed Williams Speech, NAHB Housing Market Index, Fed Clarida Speech, Fed Bostic Speech, and Fed Harker Speech.
• Tuesday, October 20: Building Permits, Housing Starts, Fed Quarles Speech, and Fed Evans Speech.
• Wednesday, October 21: MBA Mortgage Applications, Fed Brainard Speech, Fed Mester Speech, EIA Cushing Crude Oil Stocks Change, EIA Distillate Stocks Change, and Fed Beige Book.
• Thursday, October 22: Jobless Claims, CB Leading Index, Existing Home Sales, Fed Barkin Speech, and Fed Kaplan Speech.
• Friday, October 23: Markit Manufacturing PMI Flash.

Recent News

• Data points to a reduction in economic activity due to virus restrictions.
• Despite the virus, structured finance ratings have remained stable.
• Bank earnings soar again alongside increasing trading revenues.
• Delta Air Lines Inc. (DAL) still burning cash amid recovery.
• EU makes 1 billion-euro bet on Gilead Sciences (GILD).
• BP Plc. (BP) leaving emerging market oil, but could return.
• BlackRock Inc. (BLK) beat estimates on stronger inflows.
• JPMorgan Chase & Co (JPM) optimistic on virus recovery.
• With economy and credit rolling along, Fed unlikely to alter buying.
• Big technology companies nervousness prompts calls to diversify.
• U.S. retail sales blow expectations in September amid recovery.
• Gulf Coast energy companies restoring oil, gas output post-storm.
• Caterpillar Inc. (CAT) is betting on self-driving machines.
• New Apple Inc. (AAPL) iPhone to offer non-material 5G.
• Tesla Inc. (TSLA) cut prices of Model S in U.S. and China.
• Used vehicles again lift U.S. consumer prices, but inflation cools.
• U.S. consumers more optimistic about the labor market, says Fed.
• As the globe gallops into vaccine trials, insurers remain unfazed.
• U.K. minister is seeking cash from the Treasury for a no-deal Brexit.
• Despite economic and health crisis, consumers defy expectations.
• How the market learned to stop worrying and love the blue wave.
• Fed officials calling for tougher regulation to prevent asset bubbles.
• Citadel Securities has sued the SEC over a new trading mechanism.
• Moody’s downgrades U.K. as COVID-19 and Brexit hit debt outlook.
• Newly rated loans from high-yield issues rose for the second month.
• Funding to North American startups held steady in Q3 as exits rose.
• The President does not actually impact the economy as first believed.
• U.S. gun sales soar amid pandemic, social unrest, election fears.
• Facebook Inc. (FB)'s Libra tapped an ex-HSBC executive.
• Trump urges big COVID-19 stimulus, but Mitch McConnell disagrees.
• U.S.’s weakest local economies may face worse from the pandemic.
• G20 pledges to do ‘whatever it takes’ to support the global economy.
• Fed’s Clarida says data 'surprisingly strong,’ but deep holes remain.
• IEA: Oil producers may struggle to gauge demand amid second wave.
• Moody’s Corporation (MCO) sees virus credit losses rising.

Key Metrics

• Sentiment: 34.8% Bullish, 29.5% Neutral, and 35.7% Bearish as of October 14.
• Gamma Exposure: (Trending Lower) 3,113,195,433 as of October 16.
• Dark Pool Index: (Trending Neutral) 41.1% as of October 16.