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The Good Life Newsletter - Questions Surrounding a Stimulus Stalemate, Small Cap Rally & More

Stocks Rise, Stimulus Uncertain

Weekly Update - October 12, 2020

The Week on Wall Street

Stocks staged a powerful rally last week, riding a wave of optimism over the prospect of the passage of a new fiscal stimulus bill. The Dow Jones Industrial Average rose 3.27%, while the Standard & Poor's 500 increased 3.84%. The Nasdaq Composite index gained 4.56% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, advanced 2.23%.[1][2][3] 


Stimulus Stalemate?

The anticipation of lawmakers passing a new round of economic stimulus was a decisive driver of market action all week.

A mid-week tweet by President Trump announcing that he was ending stimulus negotiations sent stocks lower. Losses were exacerbated by sharp declines in some mega-cap technology companies as details emerged from a House Judiciary subcommittee report on its investigation into their competitive practices.[4]

Stocks quickly reversed direction, climbing after the President tweeted that he would sign a limited stimulus bill, but lawmakers appeared to reject a piecemeal approach.

Stocks consolidated on Friday, helped by continuing stimulus talks and new election polls that suggested that the risk of a contested outcome appeared to be fading.

Small Cap Rally

The outperformance of large cap stocks relative to small cap stocks has been both wide and persistent during the last ten years. Last week's action in small cap stocks, as represented by the Russell 2000 Index, indicates that smaller companies may finally be making up some ground.[5]

Last week, the Russell 2000 Index rose 6.33%, outperforming the S&P 500 by 2.4%.[6]

While this outperformance may be fleeting, a potential broadening of the stock market rally may be considered a healthy development.

Final Thoughts

This week begins the third-quarter earnings season, with companies from a variety of industry sectors reporting (see below). Early earnings reports start predominantly with the major banks, whose earnings results may provide insight into the general health of American consumers. 

As is often the case, company guidance about the future earnings may be of greater interest to investors than past results.  

THIS WEEK: KEY ECONOMIC DATA

Tuesday: Consumer Price Index (CPI).

Thursday: Jobless Claims. 

Friday: Industrial Production. Consumer Sentiment.  

Source: Econoday, October 9, 2020
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.

THIS WEEK: COMPANIES REPORTING EARNINGS

Tuesday: Johnson & Johnson (JNJ), J.P. Morgan Chase (JPM), Citigroup (C), Blackrock (BLK)

Wednesday: Bank of America (BAC), UnitedHealth Group (UNH)

Thursday: Morgan Stanley (MS)

Friday: Schlumberger (SLB), J.B. Hunt Transport Services (JBHT), Kansas City Southern (KSU), V.F. Corporation (VFC)

Source: Zacks, October 9, 2020
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
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International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indices from Europe, Australia, and Southeast Asia.
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[1] The Wall Street Journal, October 9, 2020
[2] The Wall Street Journal, October 9, 2020
[3] The Wall Street Journal, October 9, 2020
[4] CNBC.com, October 6, 2020
[5] The Wall Street Journal, October 8, 2020
[6] The Wall Street Journal, October 9, 2020