U.S. Stock Indexes Open Higher on Earnings Optimism

U.S. Stock Indexes Open Higher on Earnings Optimism

U.S. stocks opened higher Monday, continuing last week’s gains as investors look ahead to a week that could bring the start of a turnaround for corporate earnings.

The S&P 500 rose 0.8% after the opening bell, lifted by gains in technology shares. The Nasdaq Composite jumped 1.3%. The Dow Jones Industrial Average added 0.3%, about 98 points.

The early gains are on track to extend last week’s rally, during which the benchmark S&P 500 index advanced 3.8%, its biggest weekly gain in three months. Driving part of the rally, some investors said, was signs that the November presidential election could have more of a decisive result than originally expected as polls showed a growing lead for former Vice President Joe Biden over President Trump.

This week, the focus is likely to shift to the third-quarter earnings season. Investors are betting that the results will show corporate performance has turned a corner, helping lift stocks higher. With the economy continuing to slowly reopen, profits of large companies in the S&P 500 are now projected to drop 20% from a year earlier, an improvement from the 25% decline anticipated at the end of June.

“There is a big sense that [the third quarter] was a big quarter for growth in the U.S.,” said Kit Juckes, macro strategist at Société Générale. “It’s economically not as bad as our worst nightmare.”

Earnings will continue to rebound but the pace of improvement will slow, said Jim Cielinski, global head of fixed income at Janus Henderson.

Many companies “almost had to shut down” in the second quarter, “so the mere reopening, particularly in goods-producing companies, can lead to a pretty abrupt improvement,” he said. But, “with increased lockdowns or quasi-lockdowns, the pace of that should slow.”

Markets are also betting the Democrats may secure control of the Senate in the November election, making it a full sweep. That would lay the ground for a large stimulus package to be passed by Congress, offering additional relief to households and businesses, in the early months of next year.

“There is a good chance that we’ve overplayed the volatility due to the November election,” said Edmund Shing, Global Head of Equity Derivative Strategy at

BNP Paribas.

The Federal Reserve is still “in ‘whatever it takes’ mode,” and both major parties are committed to more stimulus, though a bipartisan deal is very unlikely, he said.

The latest White House offer on a new coronavirus package hit resistance from both Democrats and Republicans over the weekend, deflating hopes that an agreement would be struck before Nov. 3. But investors had already written off hopes of a deal before the election, and are looking ahead to the new year.

There is little incentive for lawmakers to reach an accord before the election, Mr. Shing said. That is partly because there will inevitably be a considerable lag between the actual spending and the growth, which he predicts would only start in earnest toward the end of 2021.

“The greatest odds of increased stimulus would come with the clean sweep. And we’ve already seen the Democrats’ numbers are much larger,” said Mr. Cielinski.

A decisive Democratic victory is likely to increase the scale and focus of a potential fiscal injection, Mr. Cielinski said. “What the attempt of the Democratic package is, it’s a reallocation of income away from corporations and more toward the general populace, and in particular the lower earning echelons of the general populace,” who have a higher propensity to spend, he said.

In premarket trading, shares of


jumped 4.7% after the cloud-communications company said it would buy data-platform firm Segment in a $3.2 billion stock deal expected to close during the fourth quarter.

In commodities, Brent crude, the international oil benchmark, fell 1.3% to $42.32 a barrel.

The market for U.S. Treasurys is closed for Columbus Day.

Overseas, the Stoxx Europe 600 gained 0.8%. The yield on Italy’s benchmark 10-year bond fell to a new all-time low of 0.686%.

China’s Shanghai Composite Index closed up 2.6% and Hong Kong’s Hang Seng Index advanced 2.2%.

Over the weekend, China made it easier for traders to bet the yuan will fall in value, a move analysts said showed that the country’s central bank wants to slow any further rally in the currency. Starting Monday, banks no longer need to deposit 20% of their sales when buying and selling what are called currency forwards denominated in U.S. dollars for clients.

The yuan weakened 0.8% to about 6.74 per dollar in offshore markets.

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