- U.S. stocks fall sharply on lack of stimulus bill, rising Covid infection rates, and tech-stock decline
- Pelosi’s stimulus deadline arrives today, while Senate begins voting on small stimulus measures
- Sep U.S. housing starts expected to show continued strength
U.S. stocks fall sharply on lack of stimulus bill, rising Covid infection rates, and tech-stock decline — The S&P 500 index on Monday fell to a 1-1/2 week low and closed the day sharply lower by -1.63%. The Nasdaq 100 index showed a larger decline of -1.84%.
Bearish factors on Monday included (1) doubts about whether the Pelosi-Mnuchin talks will be able to produce a stimulus bill before the election, (2) the alarming rise in Covid infection rates in the U.S. and Europe, which could get even worse as winter arrives, and (3) uncertainty about the outcome of the U.S. election that is now just two weeks away.
U.S. stocks on Monday were also pulled lower by a sharp sell-off in some high-profile tech stocks: Apple -2.55%, Microsoft -2.48%, Alphabet -2.41%, Amazon -2.00%, and Facebook -1.70%.
The NY Fang+ index on Monday closed sharply lower by -1.43%, seeing its fifth consecutive daily decline. Despite the weakness seen in the past week, the NY Fang+ index is still up +77% on a year-to-date basis, which is far better than the year-to-date gain of +33% for the Nasdaq 100 and the meager +6% gain for the S&P 500 index.
The U.S. appears to be headed towards even higher Covid infection rates as winter approaches when more people will be indoors. The 7-day average of U.S. new daily Covid infections has now reached about 60,000, which is just mildly below the record high of about 67,000 posted in July, according to Johns Hopkins.
The only good news was that NIAID Director Fauci said over the weekend that the pandemic infection rates would have to be “really, really bad” before he would advocate another national lockdown. The more likely outcome is that the U.S. will continue to hobble along with various partial restrictions until there is an effective and widely-available vaccine, perhaps by early next year. Covid infection rates have recently increased mainly because of students returning to school and a move indoors with the onset of cooler weather.
Pelosi’s stimulus deadline arrives today, while Senate begins voting on small stimulus measures — Today is the deadline that House Speaker Pelosi set over the weekend for an agreement if a stimulus bill is to be passed before the November 3 election.
House Speaker Pelosi and Treasury Secretary Mnuchin are scheduled to talk again today after their hour-long discussion on Monday. A Pelosi aide said that Pelosi-Mnuchin on Monday “continued to narrow their differences.” However, the odds of a deal as soon as today look exceedingly slim, considering the distance that still exists between the Republican and Democratic positions.
If there is no deal by today’s deadline, then Speaker Pelosi has suggested she will keep negotiating in coming days even though it wouldn’t be possible to push a deal through Congress by November 3. However, Ms. Pelosi today could also unexpectedly shut down negotiations altogether until after the election, which would undoubtedly draw a negative reaction from the markets. President Trump could also decide once again to shut down negotiations.
Meanwhile, Senate Majority Leader McConnell today is expected to hold a cloture vote on a new round of PPP funding. Democrats are expected to oppose that limited PPP bill, thus preventing the bill from getting the 60 votes necessary to bring the bill to the floor for a final up-or-down vote. Mr. McConnell on Wednesday is then expected to hold a cloture vote for his $500 billion stimulus bill, which is also expected to be shot down by Senate Democrats.
Senate Democrats remain aligned with Speaker Pelosi in her refusal to support piece-meal stimulus bills, instead demanding a full $2.2 trillion stimulus package.
Sep U.S. housing starts expected to show continued strength — The consensus is for today’s Sep housing starts report to show an increase of +3.5% to 1.465 million, partially recovering August’s -5.1% decline to 1.416 million. Meanwhile, today’s Sep building permits report is expected to show an increase of +3.0% to 1.520 million, more than reversing August’s -0.5% decline to 1.476 million.
U.S. housing starts have rebounded sharply higher in the past four months (May-Aug) by a total of +52%. Housing starts would need to rise by only another +14% to match January’s record high of 1.617 million units.
Expectations for a rise in today’s housing starts report are supported by yesterday’s news that the October NAHB housing market index rose by another +2 points to a new record high of 85 (data since 1985). U.S. homebuilder confidence is at a record high due to the strength in home sales and near record-low mortgage rates.
The current 30-year mortgage rate is at a record low of 2.81%, which makes homes much more affordable despite the steady rise in home prices seen since the Great Recession.
Meanwhile, homebuilder stock prices continue to shine. The SPDR S&P Homebuilder ETF (XHB) reached a record high just last Friday before falling back on Monday. The Homebuilder ETF (XBH) is up +23% on a year-to-date basis, which is a far better performance than the +6% year-to-date gain in the S&P 500 index.
