The Week Ahead: Testing market confidence in profits and politics

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President Trump’s positive COVID-19 diagnosis doesn’t change the market’s convictions in two things: that there will be another federal stimulus bill and that corporate profits are recovering.

The latter conviction is better grounded than the former. Yet it’s the faith that more stimulus is coming that may be tested in the week ahead without meaningful evidence.

The bulk of quarterly corporate earnings results still are a few weeks away. Confidence is high that the third quarter was not the mess business experienced in the springtime. Sure, the pandemic continues: Shutdowns and re-openings added to the already volatile environment for companies to eke out profits. Fewer companies have ventured public guidance for their third quarter results, but confidence has been growing that S&P 500 companies will report a smaller drop in profits compared to a year ago than they did in the second quarter.

What’s less certain, and more pressing for investors in the week ahead, is the fate of another stimulus plan. House Democrats, Senate Republicans and the Trump administration have been talking on and off for weeks regarding more federal spending to help underpin the pandemic economy.

Market confidence in Congress to find a compromise is measured moment-to-moment during trading hours. Faith and skepticism are actively priced on every word and whim from those negotiating a package.

House members are back home in their districts, but are on call to return to the Hill if there’s a deal. Senators are gearing up for Supreme Court nominee hearings beginning next week. Voters already are casting ballots as Election Day nears. And big layoffs have been announced by airlines and Disney.

The parties are trying to hammer out a compromise of how, and how much, to help out-of-work Americans, whether or not to provide money to local governments, and more financial assistance to small businesses.

A looming deadline, and presidential diagnosis, will help focus negotiating efforts. A market drop, though, will demand a deal.



Financial journalist Tom Hudson hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter @HudsonsView.


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