Income and Spending Reports, Plus Jobs Data and the End of the Third Quarter

Monday, September 28, 2020 4:08 PM | Bobby Raines

Sept. 28, 2020 - There are a few notable things on the calendar this week, but as has been the case the last several weeks, it is unscheduled events that have the most potential to move markets.

In particular, a deal, or definitive declaration that there will not be a deal, on new economic stimulus spending is likely to send stocks either sharply higher or sharply lower. There may be some volatility associated with rumors that send things in either direction, but our view is that the market isn't really expecting a deal at this point, so the biggest move is likely to the upside.

The calendar itself is another potential source of volatility this week. The end of September, and the end of the third quarter could cause some moves in financial markets related to portfolio rebalancing, although with stocks up for the quarter and down for the month, it is hard to know exactly how much buying or selling is going to take place before Wednesday's close.

On the calendar, Friday's Monthly Employment Situation Report is the biggest item. It seems clear from weekly unemployment claims data that the pace of the recovery in the labor market has slowed, but the monthly report has lot more detailed information on what kind of jobs are being added and lost. Of particular interest will be developments with regard to permanent vs. temporary job losses. Many of the job losses back in the spring were temporary, but as many of those workers have returned to work, an increasing number of people have been laid off permanently.

Thursday's initial claims data will take a back seat to Friday's monthly jobs report, but we're also getting data on personal income and spending Thursday morning. This will be the first look at this data after the expiration of the extra $600 per week unemployment benefits.

July saw personal incomes increase very slightly from June. Analysts expect incomes to have decreased in August, largely on the expiration of those unemployment benefits. Spending is expected to show an increase, but a more modest 0.8%, compared to 1.9% in July.

It would be nice to see both of those number beat estimates, but what we're really looking for is how they compare to recent trends. Slowing growth in the rate of spending and deceleration in earnings growth are signs that the economy is slowing down after getting a boost from the CARES Act in the Spring.

This is why the market is paying such close attention to the current stimulus talks. It also explains why tech stocks, including some very speculative ones, have outperformed the broader market recently.

Until the economy recovers and can start growing quickly again, there's not a particularly good reason to buy shares of companies that do well in a growing economy. We've seen several false starts from airlines, banks, energy firms and other companies that do well in a growing economy during the recovery, but each has fizzled.

Traders are, for better or worse, putting money in companies that have a higher potential for big profits in the future. The overall economy can be stagnant, but if electric cars suddenly becomes widely adopted, a number of stocks that look overvalued today may prove to have been worthwhile bets.

Economic Events this Week

Tuesday
  • 9:00 a.m. - S&P Case-Shiller Home Price Index
  • 10:00 a.m. - Consumer Confidence
Wednesday
  • 8:15 a.m. - ADP Employment Change
  • 8:30 a.m. - Second Quarter GDP, Third Estimate
  • 9:45 a.m. - Chicago PMI
  • 10:00 a.m. - Pending Home Sales
Thursday
  • 8:30 a.m. - Personal Income and Spending
  • 8:30 p.m. - PCE Prices
  • 8:30 a.m. - Initial Claims
  • 10:00 a.m. ISM Manufacturing Index
Friday
  • 8:30 a.m. - Nonfarm Payrolls
  • 8:30 a.m. - Unemployment Rate
  • 10:00 a.m. - Factory Orders
  • 10:00 a.m. - U. of Mich. Consumer Sentiment

Earnings Reports this Week

Tuesday:

Before the bell: ANGO, INFO, MKC After the bell: CMTL, MU, PRGS, SNX

Wednesday:

Before the bell: EPAC After the bell:

Thursday:

Before the bell: BBBY, CAG, STZ, PEP After the bell: SGH

Friday:

Before the bell:

Sector and Industry Sentiment

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