U.S. Stocks Head for Muted Weekly Loss

By Joe Wallace

U.S. stock futures wavered Friday as investors awaited clues on the pace of the economic recovery from manufacturing and services data, putting the S&P 500 on track to snap a three-week winning streak.

Futures tied to the broad stocks gauge edged up 0.2%, while contracts for the technology-heavy Nasdaq-100 drifted between tepid gains and losses. The S&P 500 had lost 0.9% for the week through Thursday.

Money managers say stocks are likely to lack clear direction in the coming weeks as they avoid placing big bets ahead of the Nov. 3 election. They are looking instead to a flurry of economic and corporate-earnings reports for a clearer picture of the economic outlook, as rising coronavirus cases threaten to slow the recovery.

White House officials and Democratic leaders are continuing negotiations over a nearly $2 trillion coronavirus-relief package, which many investors view as crucial to maintaining the economic recovery. Reported coronavirus cases in the U.S. have risen to their highest level since July. And earnings season is in full swing, with technology companies that have powered the stock market higher due to report next week.

Investors are increasingly optimistic that a second dose of stimulus will be delivered, even if many think the odds of a deal before the election are slim. Shares in sectors that are sensitive to the outlook for the economy, including energy and banks, have outperformed this week. Information-technology stocks have faltered.

"The message from markets is that fiscal stimulus is coming and it should have a positive impact on U.S. growth," said Paul O'Connor, head of multiasset at Janus Henderson Investors. Janus has booked profits from tech stocks and bought shares in regional U.S. banks, which stand to benefit from a strengthening economy, he said.

Democrats look likely to take control of the White House and both houses of Congress, making a fresh stimulus package more likely in 2021, Mr. O'Connor added.

In another sign that investors expect quicker growth and inflation, the bond market's so-called yield curve has steepened. The yield on 10-year Treasury notes rose to 0.856% Friday, from 0.847% Thursday, putting it on track to climb for a seventh consecutive trading day. Yields on two-year notes haven't risen as fast, to 0.153% Friday from 0.143% at the end of last week.

The WSJ Dollar Index, which measures the currency against a basket of others, slipped 0.2%.

Investors looked past the final presidential debate, in which President Trump and Democrat candidate Joe Biden offered differing views of the administration's handling of coronavirus. Thursday night's meeting was less combative than the pair's first, three weeks earlier. More than 47 million Americans -- more than a third of the total 2016 vote -- have already cast ballots.

"They essentially held their own," said Seema Shah, chief strategist at Principal Global Investors. The debate will do little to change investors' expectations of a Biden victory, Ms. Shah added, though she thinks markets are overestimating the chances of a blue wave.

Investors will scour preliminary surveys of purchasing managers in the manufacturing and services sectors in October at 9:45 a.m. ET. The indexes are expected to indicate that the U.S. economy is continuing to grow, albeit at a slower pace.

In Europe, the economic outlook is gloomier amid a large second wave of coronavirus infections that has prompted governments to restrict travel and leisure. Data firm IHS Markit said Friday its composite purchasing managers index for the eurozone fell to 49.4 in October, indicating a decline in manufacturing and services activity.

Investors were also awaiting another batch of quarterly earnings. American Express and Illinois Tool Works are due to publish results before the opening bell. More than a quarter of companies on the S&P 500 had reported through Thursday, and 83% of them had beaten analysts' forecasts for earnings-per-share, according to FactSet.

"It has been pretty decent," Ms. Shah said of the earnings season. Companies in the third-quarter benefited from the reopening of economic activity, falling levels of infection, and continued support in the form of government spending.

Ahead of the opening bell, shares in Gilead Sciences jumped 5.7% after the Food and Drug Administration gave final full approval to the company's remdesivir drug, which has been widely used to treat hospitalized Covid-19 patients since May. Intel shares dropped more than 9% after quarterly revenue and earnings fell, a sign the chip giant may be seeing an end to the work-from-home boost.

In overseas markets, banking stocks helped push the Stoxx Europe 600 up 0.8%, clawing back some recent losses. Barclays gained 7.6% after the U.K. lender said it swung to a profit in the three months through September. Shares in Airbus jumped 5.4% after the plane maker said it was preparing to lift production of a popular family of aircraft.

Asian markets were mixed, with the Shanghai Composite Index closing 1% lower and Japan's Nikkei 225 eking out a 0.2% gain.

Write to Joe Wallace at [e-mail]

(END) Dow Jones Newswires

10-23-20 0648ET