- The Dow Jones dropped sharply on Monday.
- Investors are spooked by uncertainty around stimulus talks and the ongoing damage from the pandemic.
- The latest election polling is also concerning for the Dow, as Trump’s gains suggest a potentially turbulent election.
The Dow Jones fell 400 points to start the week, as Wall Street deals with surging coronavirus cases and the prospect of no stimulus before the presidential election. Meanwhile, Donald Trump is gaining in the polls, suggesting a far tighter race than investors would like.
Dow Falls as U.S. Stimulus Remains Elusive
All three major U.S. stock market indices dropped on Monday, as the Dow Jones, Nasdaq, and S&P 500 fell more than 1%.
In the absence of high-profile U.S. data, investors focused on remarks from Federal Reserve Chairman Jerome Powell. Providing little new insight, Powell’s impact was instead on the cryptocurrency markets where he spelled out the possibility of utilizing a “digital dollar.” Watch the video below:
Risk sentiment was impacted by some mixed Chinese data overnight, as GDP data missed forecasts, but retail sales and industrial production managed to beat expectations.
Surging coronavirus cases in Europe and North America are an ever-present concern for markets, though vaccine progress continues to be a carrot for the bulls.
Stimulus talks continue to be extremely important for the Dow Jones, and hope of a deal is still alive. House Speaker Nancy Pelosi has set a deadline of 15:00 on Tuesday for negotiations ahead of the election. Talks with Treasury Secretary Mnuchin are ongoing,
Senate Majority Leader Mitch McConnell’s reluctance to provide another trillion-dollar stimulus package is expected to be a substantial roadblock to fiscal aid ahead of the election. This comes even as President Trump backs a $1.8 trillion spending bill.
Trump Closing Biden’s Polling Edge
Election polling remains critical for the stock market, and while Joe Biden is still the frontrunner, there is plenty of evidence to suggest that the gap is closing. In key swing state Florida, President Trump has erased Biden’s advantage, while Minnesota and Pennsylvania also show negative trends for the Democratic candidate.
Watch the video below for the latest on the presidential race:
Wall Street doesn’t seem too concerned about the probability of a Biden victory, as the prospect of additional stimulus outweighs higher taxes.
Goldman Sachs provided the following take in a note this morning, explaining how a fiscal bomb resulting from a “blue wave” would more than offset higher taxes:
Congressional Democratic majority would likely result in substantially more fiscal support. We expect that spending would increase the most under a Democratic sweep of the House, Senate, and White House. This would likely include a stimulus package in Q1, followed by infrastructure and climate legislation. In this scenario, we would expect legislation expanding health and other benefits, financed by tax increases, to pass” by the third quarter of 2021.
The stock markets would like a clear election outcome, and the closer that polling gets, the more likely there is a disruptive, drawn-out election with no stimulus. Such a narrow result could be particularly damaging to risk assets.
Dow 30 Stocks Struggle
A chunk of the damage done to the Dow 30 was inflicted by UnitedHealth, as the index’s heaviest weighted stock fell 2.1%. Johnson & Johnson and Disney were the other big losers, falling around 2.5%.
Boeing rallied on hopes the 737 MAX will be back flying this year before giving up gains later in the session. Watch the video below for updates on the infamous jet’s return to service: