Stocks Rise, Stimulus Uncertain- Weekly Update

October 12, 2020 | By Steven DiGregorio

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%. , ,

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.

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.

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

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. 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.


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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.

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Tags: Earnings, small cap, stimulus, stocks, Wall Street

STEVEN M DIGREGORIO is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.
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