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S&P Gains as Q3 Earnings Season Nears

Weekly Update – October 09, 2020

  • The S&P 500 index rose 3.8% last week, marking its second consecutive week higher, as the materials, energy, technology and utilities sectors led broad gains amid renewed hopes for a pandemic stimulus plan.
  • The market benchmark ended the week at 3,477.13, up from last Friday’s close of 3,348.44, putting the index into the black for October with a month-to-date increase of 3.4%.
  • All of the S&P 500’s sectors ended above their week-earlier levels with both the materials sector and energy sector finishing the week up 5.1%. That was followed by gains of 4.6% each in technology and utilities.
  • The strong weekly advance came as investors grew more hopeful for a second round of stimulus measures to be agreed upon by Congress, especially as President Donald Trump — who returned to the White House this week following hospitalization and treatment for COVID-19 — appeared eager to distribute stimulus checks.
  • Trump said Thursday that negotiators on Capitol Hill were “starting to have some very productive talks” on stimulus. Still, Democrats and Republicans continue to disagree over key details.
  • The materials sector’s gainers included Martin Marietta Materials (MLM). Shares rose 14% as the company’s stock was boosted by an improved analyst view. Deutsche Bank upgraded its investment rating on the stock to buy from hold.
  • The jump in energy stocks coincided with a strong weekly gain in crude oil futures thanks to the hopes for renewed stimulus talks while Hurricane Delta forced the evacuation of Gulf of Mexico platforms. Gainers in the sector included ONEOK (OKE), whose shares rallied 9.5% this week amid positive analyst actions. Among them, Wells Fargo upgraded its investment rating on the shares to overweight from equal-weight.
  • The technology sector was boosted by a 6.0% jump in the shares of International Business Machines (IBM) as the company unveiled plans to split off its Managed Infrastructure Services unit into a separate, publicly trading company. IBM said the new company, which has yet to be named, will be a tax-free spin-off to investors, expected to be completed by the end of 2021. The remaining IBM will have 50% of its portfolio in recurring revenue, the company said.
  • In the utilities sector, DTE Energy (DTE) also benefited from positive analyst actions, with JPMorgan upgrading its investment rating on the stock to overweight from neutral while raising its price target on the shares to $134 from $126. This came amid a report the company is considering selling or spinning off its natural gas pipelines and other non-utility operations. Shares of DTE climbed 5.4%.
  • Next week, the Q3 earnings reporting season kicks off in earnest, with those releasing quarterly results next week including Johnson & Johnson (JNJ), JPMorgan Chase (JPM) and Delta Air Lines (DAL). Investors will also be watching next week for Tuesday’s release of the consumer price index for September, Wednesday’s producer price index for September, and retail sales and consumer sentiment due Friday, among other data points.

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