Key Things To Watch In The Stock Market Next Week

After another week of losses, tech could be at the heart of a tug of war as dip buyers look for bargains in some of their favorite names and others see the group as still too frothy.

In the past week, the S&P 500 and Nasdaq were both down about 0.6%, the third losing week. It was the S&P 500′s longest losing streak since October. Tech was broadly lower, with Amazon and Facebook both down 5% for the week. Information technology shares lost 1% but communications which includes Facebook and Google fell 2.3% for the week.

A Healthy Sign For The Market

“I think every time you’ve had a significant pullback in the familiar names, that tends to draw in more money,”  said Ed Keon, chief investment strategist at QMA. “You’ve had a little rotation toward value. That’s a healthy sign for the market. I don’t think that’s an unhealthy market even though stocks look pricey. Given how low interest rates are, stocks look like the only game in town.”

There are also a number of Fed speeches, but the most important will be the appearances by Fed Chairman Jerome Powell before three Congressional committees. At two of those, Tuesday and Thursday, Powell appears with Treasury Secretary Steven Mnuchin to discuss coronavirus aid.

Art Hogan, chief market strategist at National Securities, said he does not expect much from Powell after his comments following the Fed’s meeting this week, though the central bank chairman is likely to once more tell Congress fiscal stimulus is needed to help the economy recover.

Keon said it would be positive if there could be another stimulus deal but the market no longer expects it. “If we do get a deal, that would be really positive. I think at this point, there’s a little bit of a slowdown in news. We still have a ways to go before we get into earnings warnings season. We’re going to worry more about the presidential election and its aftermath,” said Keon.

Keon said investors are increasingly focused on the election and the potential for an uncertain outcome, as states deal with large amounts of mailed ballots for the first time. He said the concern is it could take weeks or months to determine the outcome if the race is close.

“It’s still six weeks to the election. We haven’t had the debates yet. That six weeks is a lifetime. Biden seems to be the favorite at this point, but I don’t think the market is betting on anything but higher volatility,” Keon said. President Donald Trump and former vice president Joe Biden hold their first debate Sept. 29.

Hedge Against the Volatility

“I think volatility is the norm, not the exception, until we get through the election,” said Hogan.

Investors have been hedging against extended volatility after the election. Patrick Kernan, who trades S&P options with Cardinal Capital, said the flow into  S&P 500 options for January has been steady over the past several days. “The options markets are implying a contested election that could last until January,” he said. He said the market is not positioning around one candidate or other, just uncertainty. 

Goldman Sachs strategists noted Friday that investors have pushed out some hedging further into November, though some investors appear to be betting on an outcome by Dec. 8, the date states with contested elections have to report.

There are also a few important reports on the economic calendar, including housing data on existing home sales Tuesday and new home sales Thursday. “The housing market has been solid and hopefully, we’ll get confirmation of that because people were upset by the decline in housing starts,” said Hogan.

Manufacturing PMI is released Wednesday and durable goods are reported Friday.

Week Ahead Calendar

Monday 

6:00 p.m. New York Fed President John Williams 

12:00 p.m. Fed Governor Lael Brainard

Tuesday 

10:00 a.m.  Existing home sales

10:00 a.m. Chicago Fed President Charles Evans 

10:00 a.m. Fed Chairman Jerome Powell, Treasury Secretary Steven Mnuchin at House Financial Services on coronavirus aid

Wednesday

9:00 a.m. FHFA home prices

9:00 a.m. Cleveland Fed President Loretta Mester

9:45 a.m. Manufacturing PMI

9:45 a.m. Services PMI

10:30 a.m. Fed Chairman Powell at House Select Subcommittee Committee on Coronavirus Crisis

11:00 a.m. Chicago Fed President Charles Evans

12:00 p.m. Boston Fed President Eric Rosengren

2:00 p.m. Fed Vice Chairman Randal Quarles

Thursday

8:30 a.m. Initial jobless claims

10:00 a.m. New home sales

10:00 a.m. Fed Chairman Powell, Treasury Secretary Mnuchin at Senate Banking Committee 

1:00 p.m. Chicago Fed’s Evans

2:00 p.m. New York Fed’s Williams 

Friday

8:30 a.m. Durable goods

9:00 a.m. New York Fed’s Williams

3:10 p.m. New York Fed’s Williams