Stock Market Rally Slows With Dimming Hopes For More Stimulus, Vaccine

Tuesday evening trades began with no significant movement from stock futures. According to Yahoo Finance, the lack of activity is attributed to investors’ dwindling hopes for further federal relief and fears of stagnating progress for a potential coronavirus vaccine. All three indices closed lower after a five-day tear streak. 

The continued stalemate between Republican and Democratic lawmakers has dampened the market’s optimism that another stimulus package will be available before the election. On Tuesday, Senate Majority Leader Mitch McConnell stated that the Senate would resume negotiations when lawmakers reconvene next Monday. 

According to McConnell, the GOP’s limited bill will contain funding primarily for the Paycheck Protection Program (PPP). House Speaker Nancy Pelosi has repeatedly said she would not approve a narrower proposal, and President Trump tweeted on Tuesday, “Go big or go home!!!”

In the meantime, two leading pharmaceutical companies pursuing an effective COVID-19 treatment revealed they are suspending clinical trials, citing safety concerns. On Monday, Johnson & Johnson told it is halting testing after a participant developed an unexplained illness. The next day, Eli Lilly announced it would pause vaccine enrollment. The companies’ stock fell after the announcements, but held flat during overnight trading.

In the financial sector, Bank of America and Goldman Sachs saw modest gains during after-hours trading. The banking giants are scheduled to release their third-quarter earnings reports before Wednesday’s regular session. They come behind JPMorgan Chase and Citigroup, whose performance surpassed economists’ predictions astride robust trading revenues and fewer credit loss provisions versus the preceding quarter.

Even so, financials faltered throughout Tuesday after executives from JPMorgan explained in an earnings call that the firm’s reserves decline — intended to safeguard the bank against a possible wave of loan defaults — was not indicative of a recovery in the firm’s economic forecast. 

Meanwhile, economists scrutinized Citi’s management over continuing regulatory risks after the Federal Reserve levied a consent order on the banking giant in early October. According to Fed officials, Citibank had “significant ongoing deficiencies” concerning its risk management and internal regulations. According to Yahoo Finance, the order outlines flaws in the bank’s data management and regulatory practices, such as ongoing compliance discrepancies in Citi’s anti-money laundering processes.

In an early October note, Brian Kleinhanzl, an analyst at KBW Bank, noted that “incremental investment may be required” past the penalty fee, which sits at $400 million, and the more than $1 billion in investments to resolve its shortcomings. 

Additionally, Mike Mayo, a senior analyst at Wells Fargo and a seasoned bank watch person, supported Kleinhazl’s statement, stating that Citi’s problems will necessitate further spending, but added it wouldn’t jeopardize the firm’s position.

During an interview with Yahoo Finance’s On the Move at the start of the month, Mayo observed, “This is not life threatening.” He said that Citi’s regulatory errors could motivate the firm to implement additional, albeit gradual, enhancements to its business model.

Even so, Mayo noted, “This is another black mark at a company that’s been the worst performing large U.S. bank for the last 20 years, or 100 years, however you want to describe it.”

 

Sources
  • Cheung, Brian. “Citigroup Fine ‘Another Black Mark,’ Analyst Says – but It’s Not ‘Life Threatening’.” Yahoo! Finance, Yahoo!, 8 Oct. 2020, finance.yahoo.com/news/citigroup-regulatory-issues-to-be-costly-but-not-life-threatening-194128495.html.
  • McCormick, Emily. “Stock Market News Live Updates: Stock Futures Flat with Stimulus Talks at an Impasse, Covid-19 Clinical Trials on Pause.” Yahoo! Finance, Yahoo!, 14 Oct. 2020, finance.yahoo.com/news/stock-market-news-live-october-14-2020-221639106.html.

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