top 5 things to know in the stock market this week

U.S. Stock Futures Rose Despite Rise In Coronavirus Cases

U.S. stock futures climbed on early Monday as the number of newly confirmed coronavirus cases continues to rise while lawmakers remain at an impasse over a new stimulus deal. Stocks in Europe and Asia also advanced amid fresh optimism. The jump in futures could also be because investors are awaiting the data from Pfizer (PFE Stock Report) and BioNTech (BNTX Stock Report) in a few weeks. 

“The many cross-currents we have been fretting over in recent weeks remain omnipresent,” said Sherif Hamid, a strategist at Jefferies, in a note. “The US elections are close at hand, fiscal stimulus remains a key near-term potential catalyst, and developments on the virus front remain critical to the longer-term outlook.”

The major indexes are all trading in the positive territory. The Dow, S&P 500, and Nasdaq 100 futures were all in positive territory, moving 0.79 %, 0.89%, and 1.13% higher respectively as of 5.07 a.m. ET. The S&P 500 and Dow fell for three straight days last week before closing slightly higher on Friday. The Nasdaq Composite posted its first four-day losing streak since September. Whether we could see a strong rebound in the stock market would largely depend on the stimulus aid on Tuesday.

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Stimulus Talks In Focus 

All eyes are on Congress right now as pressure mounts to pass another stimulus aid this year. On Sunday, Speaker Nancy Pelosi set Tuesday as the stimulus deal deadline. If there’s no agreement by then, any coronavirus aid package can only happen after the election. President Donald Trump restated that he is willing to go for a bill above $1.8 trillion. That bill includes funding of another $1,200 stimulus check for eligible Americans, along with a renewal of payroll assistance for the battered industries.

House Democrats have recently passed a $2.2 trillion plan. Separately, Senate Republicans intend to vote on a $500 billion bill on Wednesday. Nevertheless, President Trump remained confident that he could sell a good stimulus deal with Pelosi. Should the stimulus deal go through on Tuesday this week, we could expect another round of massive rally in the stock market. 

“It seems that the market is optimistic that indeed stimulus will follow, whether that is tax cuts under a Trump presidency or spending under a Biden presidency,” Ben Emons, Medley Global Advisors managing director.

Earnings Season Is Picking Up The Pace

Earnings season is set to gather pace this week. Therefore, perhaps now is a good time to re-evaluate your portfolio. The last quarter could give investors a better picture of the state of corporate profitability amid the ongoing coronavirus pandemic. Last week, the earnings season was largely dominated by the big banks. This week, things are heating up with earnings from Netflix (NFLX Stock Report) and Tesla (TSLA Stock Report) coming up.

This week, a large number of companies across industries are slated to report results. They include more airlines like American Airlines (AAL Stock Report) and Southwest (LUV Stock Report). Other notable companies reporting include Procter & Gamble (PG Stock Report), Coca-Cola (KO Stock Report), Snap (SNAP Stock Report), and Quest Diagnostics (DGX Stock Report). The pain is endless for both airline stocks and cruise-line stocks in the near-medium term. All that investors seem to care about is cash burn at this moment. While tech stocks could potentially see another strong quarter, investors should practice caution when investing in this industry amid the high valuation. After all, we don’t know if the strong growth in the second quarter will persist.

Should Investors Worry About Netflix’s Earnings?

One of the hottest stocks in the market this year, video streaming giant Netflix is reporting earnings this week. Investors started to feel a bit uneasy after the company disappointed investors by saying third-quarter global net subscribers would achieve slower growth. 

“While we continue to view Netflix as a long-term winner in the video-on-demand space, we remain hesitant around near-term factors including 1) uncertainty around the pace of subscriber additions post-pandemic; 2) the impact of the pandemic on content releases into 2021; and 3) the company’s pricing power as new DTC services compete for market share,” – Raymond James analysts Andrew Marok and Aaron Kessler

Netflix currently has a market cap of $240 billion and a valuation of 62 times forward earnings. With this price tag, it may be holding investors back from buying further. That’s unless investors get a clearer guidance from the earnings report tomorrow. Investors might want to be cautious with their exposure to NFLX stock in their portfolio.

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Tesla May Have Some Doubters, But Its Gross Margin Is What You Should Be Paying Attention To

Tesla expects to report its third quarter’s earnings on October 21 after the closing bell. Consensus estimates are for the automaker to report revenue of $8.26B and EPS of $0.56. That’s higher than the EPS of $0.37 a year ago. The biggest drama may be to see if Tesla holds the line on its full-year deliveries guidance for 500K vehicles. But some analysts say there is another metric that matters the most during this Q3 report.

“Gross Margin the Key Variable for Q3,” wrote Baird analyst Ben Kallo in Thursday’s research report. Gross profit margins for Tesla encompass everything from regulatory credits to product pricing to battery costs and manufacturing scale.

With Tesla’s business firing on all cylinders, is TSLA stock a buy ahead of earnings? Since so much optimism is already priced into the stock, I’d prefer a better entry point than the $439 from Friday’s closing. I’m not sure about you. But if I am looking for an entry in the near term, perhaps $400 or below may be attractive. Nevertheless, speculating on a stock’s performance ahead of earnings is not much different from flipping a coin if you ask me. So if I were you, I would take a deep breath before jumping in to buy Tesla shares.

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