Some Market Positives This Week

Stocks may get some support this week from the resumption of the AstraZeneca vaccine clinical trial in the UK and a reiteration of easy monetary policy by the FOMC.  The US economic background is becoming somewhat less positive for the market, but it is still positive.  Growth may be moderating after a sharp Q320 bounce, while prices of goods and services have begun to recover from the virus-related shutdown.  The latter should restore profit margins.  Uncertainty about the November elections remains a cautionary overhang.

Some market participants hope the Fed will provide more details about its easy monetary policy.   But, this is unlikely.  For example, it would be helpful to know how many past years of sub-target inflation the Fed will want to offset by above-target inflation.  The Fed, however, probably wants to keep this number fluid to give them flexibility in policy making.  Powell will likely talk generally around policy-related issues in his post-meeting news conference while restating the Fed's desire to see above-trend economic growth continue even if inflation picks up.

The Atlanta Fed model and Street economists have been moving up their estimates of Q320 Real GDP Growth.  The model's projection is now 30.8% (q/q, saar), while Goldman Sachs economists are reported to have revised their estimate to 35% from 30%.  The debate in the market will soon shift to the extent growth will moderate after the Q320 bounce back.  It will be important to see Initial and Continuing Claims staying on downtrends.  They will show that economic growth remains above trend.

This week's US economic data are expected to be consistent with a moderation in growth after a Q320 jump.  August Retail Sales are seen up a strong 1.0% m/m, after +1.2% in July.  Ex Auto is expected to slow to a still-strong 0.9% from 1.9% in July.  August Housing Starts/Permits are seen little changed from the July pace, with Starts down a bit but Permits up somewhat.  August Industrial Production is seen up a strong 1.0% m/m.  The September Phil Fed Mfg Index is expected to dip to 15.5 from 17.2. 

The upcoming elections remain a subduing factor for the stock market.  Control of the Senate may be just as important as the Presidential victor for the market.  Even if Trump loses, retention of Republican control could hold back legislation viewed unfavorably by the market.