Will Bad News Continue To Drag Down Blue Chip ‘Crown Jewel Stocks

Viewed several hours before the opening bell, today is shaping up to prove again, the volatility of the current market environment. After yesterday’s gut-wrenching meltdown, most North American indicators are in the green at time of writing, though only barely. It would not be surprising if they edge into the red before the end of the day.

At the same time, most European stock indicators are in the red, dragged down by renewed COVID 19 spikes, BREXIT doubts and a slowing recovery.

The bad news yesterday dragged down blue chip ‘crown jewel stocks’ such as Morgan Stanley & Co., Bank of America Corp., Goldman Sachs Group Inc., the Coca Cola Company, JP Morgan Chase & Co., Mastercard Inc. and others.

These indicators can change during the runup to the opening bell and at any time afterwards, especially if there are developments in Washington.

It’s a vicious combination: the number of virus cases is rapidly increasing but progress towards a stimulus package is painfully slow with the outcome not guaranteed before the election. As hopes seem dim for a stimulus agreement, a cynic might be tempted to call the negotiations a ‘game of chicken’.

Interestingly but not surprisingly even despite the red ink, Zoom Video Communications Inc. closed yesterday at $517.79, up $6.27 on the day, though it had earlier traded as high as $541.11.  That underlines continuing developments such as the shift to working from home, a trend that at least merits consideration in investment decision-making.

Overall, the week generally will be a mix of good news and bad news, a case in point proven by Hasbro Inc.’s results. Yesterday it reported revenue growth at 9% in the United States and Canada and 7% in Europe and operating profit of $336.6 million though it was amongst the victims of yesterday’s sell-off. Not surprisingly its game category which includes the ever-popular Monopoly board game hit $543.1 for the third quarter of this year, up 21% from the same quarter in 2019. At least a major portion of the increased sales can be attributed to buyers stuck at home during the pandemic. At the same time, total quarterly revenue fell, dragged down due to the impact of the pandemic on its entertainment unit.

Today, Pfizer Inc. reports third-quarter earnings, and investors are hoping for more clarity on the vaccine it is developing explains Joshua Mahony, Senior Market analyst at IG Group, a London stock firm. “Given Pfizer's proclamation that they will fast-track their vaccine into production in November, there is an element of optimism that is likely to ensure stocks can navigate this second wave of infection better than the first,” he suggests.

Similarly, Merck & Co. Inc. reports third-quarter results today, hopefully with comment on the effect of the pandemic and its COVID 19 strategies

Microsoft Corp. reports its first quarter today, with revenues likely boosted by increased sales – again due to the work-from-home phenomenon -- bringing with it a boost to cloud revenues.

It would be reasonable to expect a lack of clear direction and continuing volatility at least until the election and it would be equally reasonable to expect continued volatility afterwards. Caution is always advisable but, if anything, it has become all the more important in the short and medium terms.

Related: Is the Stock Market All Doom and Gloom?