Up, Down, Sideways? Which Way Is The Stock Market Headed?

About the only thing certain about equity markets recently is uncertainty.

Nobody knows who's going to be president in three weeks time, nor can anybody adequately discern whether Democrats or Republicans will hold majorities in the House and Senate.

Will protests re-appear if Trump wins? What if Biden wins? There remains the issues which the protesters insist to be at the core of the looting, burning and rioting: systemic racial inequality and oppressive police forces.

Then there's the COVID crisis. Like the old Memorex audio tape commercials, people are asking, "is it real or is it a scam-demic?" Cases are up in some places, down in others. Vaccines look promising one day, not so hot the next, and who's going to take them when they do become available? There are other treatments available, and, by the time a safe vaccine is developed, the coronavirus may have run its course, mutating into something more like the common flu than the Black Plague.

Will we have a second wave of the virus, and will states decide to shut down again or "tough it out" this time?

Are schools open, closed, virtual? And is virtual learning as good, if not better, or worse, than traditional classroom instruction?

The politicians in Washington seem reluctant to pass another stimulus bill prior to the election, but will they continue to dither over details afterward?

Is the economy good, bad, worse, better, the same, and how does it matter? Are jobs coming back or have many gone away permanently?

While these are just top of mind issues presently, there are more underneath and over the top. It's well known that stock markets despise uncertainty, though they've shown a great resilience over the past six months, though much of the rise in stocks can be directly attributed to the Federal Reserve, which has had the money spigots open to full volume. To be fair, while stock markets loath questioning times, traders love the volatility, as adroit stock adherents are able to make positions and trades based on momentum, sentiment, money flows, political events, and just about anything other than fundamental analysis.

So, will stocks continue to rise back toward record highs or will they gravitate to the depths of the February-March crash? Getting that equation right could mean the difference between making one's way to Easy Street or wholesale wealth destruction.

There are admittedly more variables than answers, and while the squeamish will settle for somewhere in between a rally and a crash, that's not a coherent strategy for making hay, or money.

About the best the high-minded can come up with these days is a "it depends..." analysis, which leaves everybody right where they are most uncomfortable, in the dark. Volatility remains elevated. Bank stocks are currently reporting third quarter earnings and they're all over the map. JP Morgan beat by a lot, Citi, by a little, Bank of America, which reported prior to the Wednesday open, beat on the bottom line, earning 51 cents per share, but misfired on the top, as net income fell to $4.9 billion, from $5.8 billion and 56 cents a share, in the year-ago period.

Goldman Sachs smashed expectations, with profits for the three months ending in September pegged at $9.68 per share, more than double the $4.79 posted over the same period last year and well ahead of the Street consensus forecast of $5.57 per share. Goldman, like JP Morgan and Citi, slashed its provisions for credit losses to just $278 million. Bank of America raised theirs to $1.39 billion from $779 million in the prior quarter.

These credit loss provisions are tiny, considering the depth and scope of the coronavirus crisis. Apparently, banks don't see much risk associated with overdue rents, unpaid mortgages, credit card and auto loan payments that have been deferred until a later date, and student loans which have been put on hold. Either that, or they're just not realizing the losses now and more reserves will be set aside in future quarters. They may even believe their own narrative that the stock market is actually a leading indicator and it's forecasting a brighter future.

A rosy outlook may be well and good, but investors aren't buying it. All the bank stocks were lower on Tuesday, and they're looking for a repeat performance Wednesday. Bank shares were hit hard in the February-March crash and most have not returned to levels prior to that. In fact, the banks with high retail exposure - Bank of America, Citi, and Wells Fargo - are much closer to the March lows than the prior, February highs. Wells Fargo is actually trading below its March 23 low of 25.25. It closed Tuesday at 24.74 and this morning posted its first profitable quarter of the last three, earning 42 cents a share in the third quarter, two cents below forecasts. It is selling off in pre-market trading.

The airlines are kaput. Delta (DAL) posted a $5.4 billion loss in the third quarter, following an even bigger second quarter loss. United Airlines (UAL), which showed a $9.31 per share loss in the second quarter, reports after the closing bell. The estimate is for -$7.44. Ubelieveably, the airline stocks are slowly rising as hope for another government bailout is also.

You might as well throw darts at a page of stock quotes amid all the confusion and cross-currents. Staying out of the markets seems an advisable strategy - one that is a standard for CNBC's Jim Cramer during earnings seasons - until election day.

But, what happens then?

At the Close, Tuesday, October 13, 2020:
Dow: 28,679.81, -157.71 (-0.55%)
NASDAQ: 11,863.90, -12.36 (-0.10%)
S&P 500: 3,511.93, -22.29 (-0.63%)
NYSE: 13,211.95, -112.93 (-0.85%)