U.S. Stocks Waver on Stimulus Talks

10/19/2020 | 11:45am

By Alexander Osipovich and Mischa Frankl-Duval

U.S. stocks gave up early gains on Monday as hopes dwindled for a fresh stimulus package before the election.

The Dow Jones Industrial Average was down 31 points, a drop of 0.1%, in late-morning trading. The blue-chips index had jumped more than 105 points just after the opening bell.

The S&P 500 slipped 0.2%, while the technology-heavy Nasdaq Composite declined less than 0.1%.

It looks increasingly unlikely that a big U.S. government spending package will be approved before Nov. 3, analysts said. Investors have been closely monitoring the on-again, off-again progress of talks between lawmakers and the White House. Further relief to households or businesses battered by the coronavirus pandemic could bolster the economic recovery as the effect of previous stimulus measures wears off.

Over the weekend, House Speaker Nancy Pelosi told the White House it had until Tuesday to reach a deal with Democrats. If the deadline passes without a deal, ongoing talks would be increasingly unlikely to produce sweeping relief legislation worth trillions of dollars within the next two weeks, her aide suggested. Mrs. Pelosi and Treasury Secretary Steven Mnuchin spoke Saturday night, but a number of differences remain.

"President Trump would love to have a stimulus package before the election," said Michael Mullaney, director of global markets research at Boston Partners. "But there's no political upside for Pelosi to sign anything before the election."

Markets are betting that a "blue wave" election--in which Democrats win control of both the White House and Congress--will eventually result in a large stimulus package, Mr. Mullaney said, though he added that such an election result could ultimately dampen market returns due to higher taxes.

With Covid-19 continuing to impact the economy, further fiscal stimulus will be necessary, said Robert McAdie, chief cross-asset strategist at BNP Paribas.

"Without renewed fiscal stimulus you'll see a new wave of unemployment, and a new wave of delinquencies and defaults, and that will certainly weigh on growth," he said.

An advance in major U.S. stock indexes has stalled in recent days, leaving the S&P 500 hovering less than 3% below the record high it reached in early September. Last week, stocks eked out muted gains as investors reckoned with persistently high Covid-19 cases and political uncertainty.

Investors are also keeping a close eye on corporate earnings.

Netflix, Tesla and AT&T are among the major companies reporting financial results in the coming days. Technology giant International Business Machines, or IBM, will report on Monday after the market closes.

"It's going to be all about the guidance, and the guidance has largely been better than expected, certainly in the U.S.," said Andrew Cole, head of multi asset in London at Pictet Asset Management. "Everybody knows earnings this year are going to be pretty horrid from a year-on-year perspective, so when we start to think about earnings, it's increasingly 2021 that matters," he said.

Shares of AMC Entertainment jumped 23% after the movie-theater operator said it would resume operations at some locations in New York state beginning Friday.

American Equity Investment Life Holding shares dropped 17%. The company on Sunday rejected a takeover offer by Massachusetts Mutual Life Insurance and Athene Holding, and said it instead reached a partnership with Brookfield Asset Management.

ConocoPhillips shares held steady, ticking up less than 0.1%, on news that the oil giant would acquire Texas shale driller Concho Resources in a $9.7 billion all-stock deal. Concho shares rose 0.7%.

Shares in Front Yard Residential surged 35% after the U.S. Virgin Islands-based real-estate investment trust said it had agreed to be acquired by a group led by investment firm Pretium Partners LLC and funds managed by Ares Management Corp. in a deal worth about $2.4 billion.

Overseas, Chinese officials said that gross domestic product expanded by 4.9% in the third quarter from a year earlier, putting China's economy back toward its pre-coronavirus trajectory half a year after the pandemic gutted its economy.

Investors had a mixed reaction to the data, as the growth figure fell short of expectations. The Shanghai Composite Index fell 0.7%, while Hong Kong's Hang Seng Index rose 0.6%.

The pan-continental Stoxx Europe 600 was down less than 0.1%. Euronext NV, which operates exchanges across Europe, said it had resolved a technical issue that had halted trading in some markets.

The yield on 10-year Treasury notes ticked up to 0.777%, from 0.743% on Friday.

In commodities, U.S. crude-oil futures rose 0.4% to $41.27 a barrel.


Chong Koh Ping

contributed to this article.

Write to Alexander Osipovich at alexander.osipovich@dowjones.com and Mischa Frankl-Duval at Mischa.Frankl-Duval@wsj.com

(END) Dow Jones Newswires

10-19-20 1144ET

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