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77% Of Economic Activity Lost To Social Distancing Is Back, But An Economic Recovery Still Depends On A Vaccine

77% Of Economic Activity Lost To Social Distancing Is Back, But An Economic Recovery Still Depends On A Vaccine

Topline

Third-quarter earnings season officially kicks off this week with big banks, airlines and consumer-staple firms set to report on Tuesday, and though Wall Street’s eyeing improvements over the previous quarter, a sustained economic recovery is still ultimately contingent on widespread vaccination.

Key Facts

Big banks and airlines–two of the coronavirus pandemic’s worst-hit industries–kick off earnings season on Tuesday, with JPMorgan Chase, Citigroup and Delta Air Lines all set to report before the opening bell.

Expect weak and uneven sales growth, and a collapse in profit margins, to characterize third-quarter results, Goldman Sachs said in a weekend note to clients, adding that it still expects election results will have more of an impact on stocks than earnings, and that ultimately, vaccination is “essential for the normalization of the economy.”

Goldman believes there’s a 48% chance that there will be enough doses of an FDA-approved coronavirus vaccine to treat 25 million Americans by the second or third quarters, the most likely time lines, followed closely by 42% odds that this will happen by the first quarter.

Meanwhile, wealth management firm Glenmede said Monday that although it estimates 77% of economic activity lost due to social-distancing mandates has been regained, it only expects earnings will see a small rebound from an “abysmal” second quarter.

Glenmede doesn’t expect earnings will reach new highs until the second half of 2021, which the firm adds is “not so coincidentally aligned with estimates for vaccine delivery.”

In a Monday note to clients, LPL Financial had similar hopes, saying, “The combination of efficiencies gained during the recession,

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Merger And Acquisition Activity, Stimulus Hopes, Higher Yields

Merger And Acquisition Activity, Stimulus Hopes, Higher Yields

Key Takeaways:

  • Volatility ebbing after spike earlier in the week
  • Aid for struggling airlines a top focus in ongoing stimulus talks
  • AMD reportedly in talks to buy rival chipmaker Xilinx
    XLNX

An election with far-reaching policy implications—one way or the other—is less than a month away. Big banks are set to kick off what could be a challenging earnings season. Fresh outbreaks of Covid-19 have been reported here and abroad. And a Category 3 hurricane—the 25th named storm this season—is about to make landfall in the U.S.

And yet, the S&P 500 Index (SPX) and other indices find themselves within striking distance of all-time highs as a rally enters its third day early Friday. The Dow Jones Transportation Average ($DJT) has actually made new all-time highs. After touching 30 earlier in the week, the Cboe Volatility Index (VIX) has fallen 13% and starts the day with a 25-handle. Merger and acquisition (M&A) activity has picked up in earnest this week (see more below). And Treasury yields have been inching toward normalcy, and could be poised for a breakout to the upside.

If 2020 has taught us one thing, it’s that markets have the power to surprise, if not confound, even the most seasoned investor. That’s important to remember as we enter the election home stretch and prepare for the often-notable Q3 earnings season.

Is this a rally that’s got some legs? Or is it more like a market without much conviction, but one where few people want to get in the way of the upward momentum? We saw on Tuesday how things can turn back on a dime, but the quick recovery that started Wednesday and has carried through until Friday morning might hint that anyone trying to go short here faces a challenge.

If the

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