Stock to Play this Week as a New Pre-Election Reality Sets In

Market futures are down heavily this morning, on no big news in particular.

The passing of Supreme Court Justice Ruth Bader Ginsburg on Friday night definitely added another source of contention and volatility to politics in D.C.

Big Media has spared no effort covering the fight over the Supreme Court over the weekend. It’s the only story around right now. And with President Trump set to nominate a replacement later this week so close to an election, the fight over the Senate vote will be very contentious.

Barring any “October surprises,” this is set to be Big Media’s big story leading into the election.

Lost amid all this talk of the Supreme Court is a much more urgent reality. A new Justice will indeed influence the country’s judicial trajectory over the long term.

But here, today, the market wants (and expects) another stimulus package. The addiction to government subsidies, whether they come from Congress as tax breaks or payments, or from the Fed as even lower interest rates or asset purchases, is stronger than ever.

Those subsidies are now at risk, and that’s the Reality Gap for this week.

Republicans and Democrats in Congress have already failed twice to agree to another round of stimulus. With the added contention of filling a Supreme Court seat (or not) so close to an election, the chances of them agreeing now are slim to none.

In short, the market opening further in the red this morning is much like a spoiled kid stomping its feet because it’s not getting any more candy.

Add to that the continued profit taking after the summer’s run-up in stocks, worries about new Covid-19 spikes in Western Europe and beyond, as well as concerns that Covid-19 vaccines will come later than the optimists had hoped, and you can see what’s driving the markets down.

However, amid all this gloom there are some earnings reports to keep an eye on, as they may offer some profit opportunities.

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Tomorrow afternoon, Nike Inc. (NKE) is set to report. The stock has been doing very well, and as a company with operations and sales all over the world, the report will tell us much about the state of the world’s economy. After the recent run-up, the stock could fall after the report. Buy the dip if it does, because Nike will keep excelling.

Also tomorrow afternoon, homebuilder KB Home (KBH) will be looking to follow competitor Lennar Corp.’s (LEN) results from last week, when it reported good numbers. But where Lennar got beat down on a slightly less rosy forecast than traders had wanted, I expect KB Home to restore some optimism to homebuilders.

On Wednesday morning, General Mills Inc. (GIS) will report its quarterly numbers. The kitchen pantry mainstay had been faring poorly for some time until Covid-19 hit, when it saw a brief resurgence and the stock rallied. But America’s return to buying cereal was brief, and as sales dropped back down, the stock sold off even before the tech pullback we’re seeing now. Traders are anticipating some bad numbers on Wednesday, and I do too.

Costco Wholesale Corp. (COST) reports after markets the next day. Costco was a big success story early on during Covid-19, then had to play catch up to the wider markets. I’m expecting some good numbers and a good response from the stock.

Earlier that day, RiteAid Corp. (RAD) will probably do the opposite. Like its competitors CVS Health Corp. (CVS) and Walgreens Boots Alliance (WBA), RiteAid had an early push up during the pandemic. But the other two have suffered since. Look for RiteAid to do the same, especially as it is weaker than CVS.

Great trading, stay safe out there and God bless you,

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D. R.

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