(MarketWatch) Earnings continue to take center stage on Friday, ably supported by the twists and turns of the U.S.-China trade war.
Renewed trade fears sent stocks retreating on Thursday, while mixed corporate earnings failed to inspire investors.
Oil majors Exxon and Chevron, consumer goods giant Colgate-Palmolive and Chinese e-commerce giant Alibaba will be in focus as they report third quarter results ahead of the open.
In the background, the race to become the Democratic challenger to Donald Trump in next year’s election is bubbling along — and investors should take note.
Goldman Sachs, in our call of the day, has downgraded the communication services sector to neutral from overweight due to rising regulatory risk ahead of the election.
Facebook and Alphabet the sector’s dominant constituents, are facing antitrust investigations and Goldman said the risks will rise in the 367 days until the public go to the polls.
“Although the growth prospects of many communication services companies remain attractive, the valuation overhang from regulatory uncertainty will likely continue to grow and weigh on the sector’s performance,” analyst David Kostin said.
In a note, Goldman Sachs said antitrust lawsuits against IBM in 1969, AT&T in 1974, and in 1998 had all hit the companies’ sales growth and valuation.
Elsewhere the note said most equity investors had focused on Elizabeth Warren’s rising prospects and the potential consequences of her policies.
Most notably managed health care stocks have declined as Warren’s popularity has risen, Goldman said, due to her “Medicare for All” proposals.
Kostin said the winning candidate would still need the support of both chambers of Congress for policies discussed on the campaign trail to be implemented and urged investors to look at the probability of outcomes.
He added: “Based on our earnings and valuation sensitivities, the current state of the race implies a probability-weighted year-end 2020 S&P 500 level of roughly 3,200.”
