U.S. stocks rose on Monday, continuing last week’s gains as investors expect a week that could kick-start corporate profits.
The S&P 500 rose 0.9% in morning trading, raised by gains in technology stocks. The Nasdaq Composite jumped 1.6%. The Dow Jones industrial average added 0.4%, or about 115 points.
Early gains are set to extend last week’s rally, during which the S&P 500 benchmark rose 3.8%, the biggest weekly three-month rise. The launch of part of the rally, according to some investors, is a sign that the presidential election in November may have a more decisive result than originally expected. Polls show a growing advantage for former Vice President Joe Biden over President Trump.
This week, the focus of traders is likely to shift to the profit season for the third quarter. Investors bet that the results will show that corporate results have become an angle, helping to raise stocks higher. As the economy continues to open slowly, the profits of large companies in the S&P 500 are now expected to fall by 20% compared to a year earlier, an improvement from the 25% decline expected at the end of June.
“It simply came to our notice then [the third quarter] it was a big quarter for growth in the United States, “said Keith Jukes, a macro strategist at Société Générale. “It̵
Profits will continue to recover, but the pace of improvement will slow, said Jim Cielinski, global head of fixed income at Janus Henderson.
“Many companies almost had to close in the second quarter, and so the opening itself, especially in companies that produce goods, could lead to quite a sharp improvement,” he said. But “with increased blockages or quasi-conclusions, the pace should slow down.”
Markets are also betting that Democrats can secure control of the Senate in the November election, making it full-blown. This would lay the groundwork for a large package of incentives to be passed by Congress, offering additional relief for households and businesses, in the first months of next year.
“There is a good chance we have overcome the volatility due to the November elections,” said Edmund Shing, global head of equity derivatives strategy at BNP Paribas..
The Federal Reserve is still in the “whatever it takes” regime, and the two main parties are committed to more incentives, although a bilateral deal is highly unlikely, he said.
The White House’s latest offer of a new coronavirus package met with resistance from both Democrats and Republicans over the weekend, dampening hopes that an agreement would be reached before Nov. 3. But investors had already written off hopes for a deal before the election and are looking forward to the new year.
There is little incentive for lawmakers to reach an agreement before the election, Mr Shing said. This is partly because there will inevitably be a significant slowdown between actual spending and growth, which he says will not start seriously until the end of 2021.
“The greatest chances for an increased stimulus would come with a clean swing. And we have already seen that the number of Democrats is much higher, “Mr Cielinski said.
A decisive democratic victory is likely to increase the scale and focus of a potential fiscal injection, Mr Cielinski said. “What is the experience of the democratic package is the redistribution of income from corporations and more to the population, and in particular to the lower paid echelons of the population,” who are more inclined to spend, he said.
Shortly after the bell, Twilio shares jumped 4.2 percent after cloud communications company said it would buy Segment for a data platform in a $ 3.2 billion share deal expected to close in the fourth quarter.
Technical stocks also reported large gains. Twitter jumped 4.9% and Apple added 3.6%.
In raw materials, the Brent crude, the international oil index, fell 1.4% to $ 42.26 per barrel.
The US Treasury market is closed for Columbus Day.
Abroad, the Stoxx Europe 600 won 0.6%. China’s Shanghai Composite Index closed 2.6% and Hong Kong’s Hang Seng Index advanced 2.2%.
“Caitlin McCabe and Joe Wallace contributed to this article.”
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