Virus V. Earnings – How the Week Sets Up

Posted on

Equities lower on lockdowns and stimulus fail
IFO come sin mixed
Nikkei -0.44% Dax -2.05%
UST 10Y 0.81%
Oil $38.78
Gold $1900/oz.
BTCUSD $1308.

Asia and the EU
EU IFO 95 vs. 96.5

North America Open
USD New Home Sales 8:30

A very distinct risk-off mood to the start of the week as investors woke up to grim news that COVID cases were rising to record highs in Europe and the US with France’s caseload expected to hit 100,000 infections per day sometime this week.

Adding to the sour mood was news that stimulus talks remained at an impasse over the weekend essentially eliminating any prospect of the bill’s passage before the election. Finally disappointing earnings from SAP – on the bellwether stocks on the DAX – sent the share plunging by 20% which pushed DAX lower by 2%.

With COVID and stimulus failure factored into investor sentiment the unknown for the market this week will be earnings. This is a very busy week for earnings especially for tech-heavy Nasdaq which will see Amazon, Microsoft, Facebook, and Google all report numbers with investors hoping that these “work-from-home” beneficiaries will surprise to the upside.

The FANGs have been the primary drivers of the rebound in stocks and their profit picture as well as forward guidance will be crucial to any further rally in the indices. If the high tech darlings fail to meet the expectations of investors the market could set up for a vicious downward slide as investors will face risk from COVID lockdowns, lack of fiscal stimulus, and peak growth in WFH stocks.

With markets generally sanguine up to now a miss on earnings expectations could be the key catalyst for a correction that some analysts have argued is long overdue. Still, the dominant theme, for now, remains risk on with benchmark 10-year yields at recent highs of 81 basis points, and if the FANGS can assuage investor concerns and beat their marks the rally could continue unabated despite all the risks present in the global economy.

Boris Schlossberg
Managing Director

Leave a Reply

Your email address will not be published. Required fields are marked *