Before The Bell - The current trading week on Wall Street started out on a positive note, with the major averages posting nice gains on Monday. However, the bulls have been quiet since, with the indexes retracing those advances and then some over the last two days. Yesterday, proved to be another volatile session for stocks. After bouncing back and forth around the neutral line in the first half of the session, the selling picked up in the final hours. At the end of the session, the Dow Jones Industrial Average, the NASDAQ Composite, and the broader S&P 500 Index were 166, 95, and 23 points to the downside, respectively. That selling is expected to resume when the U.S. market opens this morning, and initially it looks like it will be notable. 

In general, the last two trading days had a mostly bearish tone, with investors becoming a bit unnerved by a few uninspiring events, including what would be considered a mixed start, at best, to the third-quarter earnings season. The news from the banking sector has varied, with better-than-expected reports from industry giants JPMorgan Chase (JPM) and Goldman Sachs (GS) offset by weak quarterly results from Wells Fargo (WFC) and Bank of America (BAC). And even the JPMorgan report had things (i.e., 2021 guidance) that did not sit well with investors. That produced some profit taking the last few days. The banking stocks continue to slump, as worries persist about the sector being hurt by the COVID-19 pandemic impact on the U.S. economy and the resultant near-zero percent short-term interest rates. The latter is expected to weigh on the earning power of the banks in the next several quarters.

Looking forward, the investment community will likely need some positive news from Corporate America this earnings season, as stocks may face a “wall of worry” in the coming weeks, which includes the uncertainty of the upcoming presidential election outcome and the growing sentiment that a much-needed stimulus package for individuals and small businesses suffering from the COVID-19 impact is looking far less likely ahead of the November 3rd elections. The U.S. economy’s recovery from the depths of the government-mandated shutdowns in the early spring months appears to be losing some steam in recent weeks, and the need for a fiscal relief package is high. In fact, yesterday we learned from a CoreLogic (CLGX) report that late-stage mortgage delinquencies rose to 1.4% among borrowers in July, the highest level since 1999. The July figures represent the latest available data and stand in contrast to the pre-coronavirus March reading, when late-stage delinquencies—120 days or more—stood at just 0.1%. This, along with stubbornly high initial unemployment claims data in recent weeks (898,000 new claims in the latest week versus the expectation of 825,000 filings), is a clear sign that there is pockets of stress in the U.S. economy.

This morning has brought some more quarterly data from the corporate world. The banks were once again in the news with industry giant Morgan Stanley (MS) reporting better-than-expected revenues in the latest period. We also learned that Walgreens Boots (WBA) beat expectations on both the top and bottom lines and that the company is raising its near-term expectations. Shares of the pharmacy giant are up nicely in pre-market action. 

Before the market’s open, the equity futures point to a continuation of the selling that picked up at the end of yesterday’s session. The major European bourses also are under heavy selling pressure today. The primary culprit is COVID-19. In Europe, investors are worried about another round of virus-related restrictions by a number euro zone countries to slow the recent spike in coronavirus cases on the Continent, and the likely negative impact such moves will have on their already struggling economies. Stateside, the investment community is clearly disappointed about the continued stalemate on Capitol Hill to deliver a stimulus package to help individuals and small businesses hurt by the Covid-19 pandemic. Small- and medium-size businesses employ about half of the U.S. labor force, and as they continue to struggle, the likelihood of initial weekly unemployment claims moving in the wrong direction, like we saw this morning, will probably persist.  Stay tuned.   – William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.