Day Traders Diary

10/19/20

The major averages sold off sharply ahead of a key deadline set by House Speaker Nancy Pelosi to reach a deal on new coronavirus stimulus before the election while Covid-19 cases rise. The Dow Jones Industrial Average closed down 410 points lower, or 1.4%, at 28,195. Earlier in the day, the 30-stock average was up more than 100 points. The S&P 500 dropped 1.6% to close at 3,426 while the Nasdaq Composite pulled back 1.7% to 11,478.

Both the Dow and the S&P 500 had their worst day since Sept. 23. The Nasdaq posted its biggest one-day loss since Oct. 2. It also logged its first five-day losing streak since August 2019.

Shares of Big Tech contributed to the decline. Alphabet, Microsoft, Apple and Amazon were all down at least 2%. Facebook dipped 1.7%. Energy and tech were the worst-performing S&P 500 sectors, dropping 2.1% and 1.9%, respectively.

Pelosi, D-Calif., gave the Trump administration on Sunday 48 hours to reach an aid deal before the Nov. 3 election. Pelosi and Treasury Secretary Steven Mnuchin were also slated to speak Monday afternoon.

However, The Washington Post reported, citing sources, that a deal between Pelosi and the administration was not "sounding imminent." The news sent the major averages to their lows of the day.

Democrats and Republicans have tried for weeks to move forward on a new aid package. But differences over the how much stimulus is needed and how broad the bill should be have complicated the negotiations.

Tom Block, Washington policy strategist at Fundstrat Global Advisors, thinks it is possible that a deal between the Trump administration and Pelosi can be reached.

Global coronavirus cases hit 40 million on Monday, which also put a damper on market sentiment.

A CNBC analysis of Johns Hopkins University data showed Covid-19 cases were growing by 5% or more in 38 states as of Friday. Nationwide, the daily case average has risen by more than 16% on a week-over-week basis to nearly 55,000. New coronavirus infections in Europe are rising by about 97,000 per day, up 44% from the prior week.

Stocks were coming off a week of choppy trading action. The S&P 500 and the Dow fell for three straight days last week before closing slightly higher on Friday.

Longer-dated Treasuries faced selling pressure despite the weakness in equities, which was reflective of cash-raising efforts. The 2-yr yield finished flat at 0.15%, while the 10-yr yield increased two basis points to 0.76%. The U.S. Dollar Index declined 0.3% to 93.44. WTI crude futures finished little changed at $40.84/bbl.