Dow Falls Again, on Track for Worst Month Since March Covid Meltdown

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Dow Falls Again, on Track for Worst Month Since March Covid Meltdown
  • The Dow Jones Industrial Average declined by as much as 128 points on Friday.
  • Risk appetite is declining ahead of next week’s presidential election, the Dow on track for its worst month since March.
  • U.S. Covid-19 cases top 89,000 in a single day, a new record.

The Dow and broader U.S. stock market declined on Friday, as pre-election jitters and mixed corporate earnings weighed on investor sentiment.

Dow, S&P 500, Nasdaq Decline

All of Wall Street’s major indexes traded lower on Friday, reflecting a somber pre-market for U.S. stock futures. The Dow Jones Industrial Average fell by as much as 128 points and was on track for its worst month since March.

Dow Jones, DJIA
The Dow Jones Industrial Average declined on Friday. The blue-chip index is down more than 4% in October. | Chart: Yahoo Finance

The broad S&P 500 Index of large-cap stocks declined 0.4%, while the technology-focused Nasdaq Composite Index fell 0.8%.

A measure of implied volatility known as the CBOE VIX traded relatively flat on Friday after surging to four-month highs earlier in the week. The so-called “fear index” is currently hovering in the mid-37 region on a scale of 1-100, where 20 represents the historic average.

Risk Appetite Wanes Ahead of Election

Equity markets are facing renewed selling pressure in the lead-up to next week’s presidential election. Investors hoping for a clear election outcome on Nov. 3 have seen President Trump narrow the gap with Joe Biden in recent polls, raising the possibility of a contested election. watch the video below to see how 2020 election polling compares to the 2016 cycle:

Risk appetite is declining in anticipation of the election and amid rising Covid-19 cases worldwide. Jean-Francois Paren of Credit Agricole CIB told clients:

Our short-term risk-appetite indicator is firmly in negative territory… The adjustment of risky asset prices to the weaker epidemic and economic outlook could continue, which is not encouraging for risk asset prices in the coming days, especially given the uncertainty regarding the U.S. elections.

The U.S. economy bounced back in the third quarter, but a resurgence in virus cases is raising concerns about additional lockdowns. More than 89,000 new infections were reported Thursday, a new record.

Corporate Earnings in Focus

Software giant Microsoft reported better than expected earnings this week, though a string of mixed corporate results puts Wall Street on track for its worst quarter since at least 2008.

third quarter earnings, factset
While corporate earnings have been mostly better than expected, several industries have reported brutal year-over-year declines. | Chart: FactSet

Among the S&P 500’s 63 industries, 44 are reporting year-over-year profit declines in the third quarter. Airlines have been the hardest hit, falling 313% as an industry. Hotels, restaurants, and leisure are down 133% year-over-year, according to FactSet data.

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