Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for October 12, 2020.
Last week was a strong one for US shares, as investors eyed potential routes to a new round of fiscal stimulus. The Nasdaq Composite gained almost 5%, while the S&P 500 closed the week 3.8% higher – its best week in three months.
Multiple changes of direction by the White House and ongoing negotiations with Senate Republicans and House Democrats dominated headlines, but hopes of a decisive election outcome emerged as a positive force for stocks. A Democrat in the White House could ease the passage of a more substantial stimulus package, and a clear cut outcome would avoid a likely volatile market reaction to a contested result. Hopes of a package being passed before the election diminished over the weekend, however, as a near $1.9trn offer drew criticism from both parties.
Along with stimulus negotiations and election polls, investors will be watching third-quarter corporate earnings, which kick off in the US this week. According to data from Factset, analysts are expecting aggregate S&P 500 earnings to come in 20.5% below Q3 2020, a prediction that has improved in recent months.
Nonetheless, markets in Asia set a positive tone on Monday, as China’s CSI 300 index of blue-chip stocks gained 2.7% after comments emerged around the next five-year plan for the country. Hong Kong’s benchmark Hang Seng index also added 2.2%.
Meanwhile gold held steady above the $1,900 mark, trading at $1,926 this morning, although with little momentum to propel it higher, while crude oil – which has been in the eye of the storm of coronavirus – was flat at just over $40 a barrel after last week’s strong rally when it gained around 10%.
Small-cap stocks outpace large-cap
The Nasdaq Composite led the three major US stock indices last week, but it was small-cap stocks that drove it overall. For the second week in a row, small-cap shares beat their large-cap siblings, with the Russell 2000 index climbing 6%. During the week, US crude oil prices gained around 10%, although still haven’t broken free of the narrow price range they have been stuck in for months. A statement from OPEC Secretary-General Mohammad Barkindo on Thursday saying the worst is over for the oil market was one factor buoying prices.
On Friday, the news that chipmaker AMD plans to buy rival Xilinx sent the latter’s share price soaring by 14.1%, although there is no guarantee a deal will come to fruition. The WSJ highlighted that a near doubling in the value of AMD’s shares this year could embolden it to go after acquisitions, using its stock as currency.
Ahead of the coming week, US stock futures were close to flat yesterday night, as investors wait for what is certain to be a tumultuous five days of headlines. In a Friday note, analysts at financial advice firm Edward Jones noted that the passage of a new relief package “does not represent a do-or-die scenario for the broader recovery,” but said they do believe it will be necessary to stave off a partial relapse.
- S&P 500: +0.9% Friday, +7.6% YTD (+3.8% last week)
- Dow Jones Industrial Average: +0.6% Friday, +0.2% YTD (+3.3% last week)
- Nasdaq Composite: +1.4% Friday, +29.1% YTD (+4.6% last week)
Rolls Royce stock almost doubles in a week
London-listed shares enjoyed a positive last week; similar to their US counterparts, small-cap names raced ahead of large caps. The FTSE 250 closed the week 3.9% higher, versus the 1.9% gain posted by the FTSE 100, meaning the former is now around three percentage points ahead year-to-date.
Rolls-Royce was the big success story of the week, with its share price almost doubling from what was a 17-year low. Broad hopes that the airline industry may be through the worst of the pandemic appeared to be the catalyst, along with news that the firm secured funding through a new bond offering. The firm’s share price remains close to 70% down year-to-date, however.
At the bottom of the FTSE 100 pile last week was online grocery firm Ocado Group, which sunk double digits following a mammoth year-to-date rally. The firm is currently facing down technology patent lawsuits in both the US and UK from automated storage firm AutoStore.
- FTSE 100: +0.7% Friday, -20.2% YTD (+1.9% last week)
- FTSE 250: +0.7% Friday, -17.4% YTD (+3.9% last week)