The DJIA futures along with S&P 500 futures have started the third quarter with a bang as there is significant optimism among investors over fiscal stimulus and economic recovery. This optimism and economic recovery are aiding investors to overcome their fears regarding the resurgence of coronavirus across the US and around the globe.
It was expected that we were to see a spike in coronavirus cases as the world economy resumed its economic operation, however, there were places where the outbreak of the virus wasn’t handled very well before reopening the economy such as the US. Overall, investors are in a mood to favor riskier assets and take advantage of the discount which is available in several different sectors such as airline and leisure.
Wall Street is likely to face a lot of turbulence when we officially start the third-quarter earnings season. The question for them is how much more optimism are we going to see in terms of forward guidance when the US stock market will begin to report its earnings. The stock market rally is hinging on something that no one really knows how to predict—the forward guidance under the current circumstances due to Covid-19.
The global stock market also began the week on a positive note and investors are likely to build on this momentum. The Shanghai index jumped 5.36%, the HSI soared 3.32% and the Nikkei increased by 1.83%.
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US Stock Market And US Economy
Last week we had another mind-blowing reading for the US payroll number. Once again, not many were expecting the US unemployment rate to fall this quickly, and throughout this week and month, investors are going to look for an echo of this positivity in other economic numbers.
One of these numbers is scheduled to be released today, the US ISM- Non-Manufacturing PMI data. The forecast is that we are likely to shift back in the expansion territory with a reading of 50. A reading of 50 and above represents expansion and below that is contraction. The previous month’s reading was 45.4.
DJIA Index and S&P500 Index: Market Breadth
The stock market’s breadth shows bulls are maintaining their momentum. We still have 33% of the Dow Jones stocks that are trading above their 200-day moving average.
The S&P 500 stocks show improvement in the bullish momentum. 41% of the stocks are trading above their 200-day moving average, an improvement of 1% (40%, during the previous session) from a day earlier.
Dow Jones and S&P 500 Futures Today
The Dow Jones futures are trading strong and are up by 150 points, they have spent most of the morning session with strong gains.
The Dow Jones futures have moved above its 50 and 100-day moving averages on a daily time frame which is bullish for the Dow Jones stocks. The DJIA index is in battle with the 200-day moving average and a close above this will firmly put bulls in a better place.
The S&P 500 index, which represents better strength of the overall US stock market, shows things are about to shift. The S&P 500 stocks are trading above all the important moving averages: 50, 100 and 200-day smooth moving averages (SMA). We also have the 50-day SMA crossing above the 200-day SMA and this is considered as a bullish trend among the traders who trade based on technical analysis.
Stock Market Rally
The S&P500 index kept the bullish momentum alive on its last trading day and closed with 0.45% gains. 2 sectors out of 12 closed in positive territory. The material and energy sectors were the best performing while real estate and communication suffered some minor losses.
The Dow Jones index also scored gains and closed with modest gains of 0.36%. 7 stocks out of 30 DJ30 stocks fell while the rest closed with recent gains.
The NASDAQ composite, also known as a tech-savvy index, closed with gains of 0.61%.
Coronavirus: New WHO Warning
The World Health Organisation came out with more bad news over the weekend, it reported a global surge in infection rates. South Africa and Iran, both suffered from of their worst days in regards to new Covid-19 cases.
Coronavirus cases in the US also surpassed their average of 1.8% to 2%. US states are doing their best to keep their economies open. Wearing masks is something that is considered an essential measure and a reliable way to handle the surge in virus cases.
Trump and China
The US stock market which seems like a good place to be in today may change its colour if Donald Trump signs the legislation that will impose sanctions on China due to the national security law in Hong Kong. Speculations are that Donald Trump is considering up to three strict measures against China and more information could come much sooner than currently anticipated. Again, no matter what Trump will announce, Trump’s action is likely to be met with an equal retaliatory action from Beijing which may anchor tension.
Gold Prices: Still Optimistic?
Gold prices have consolidated during the past weeks. The trading range has become narrow as the precious metal inches closer to an important psychological resistance of $1,800. Despite the economic recovery, investors are betting for the gold prices to continue their journey to the upside because of the inconsistency of economic recovery as shown in economic numbers.
Traders do know that the journey ahead is full of obstacles. For them, what we have seen so far, is more of a technical bounce, that is when the economy suffers a sharp drop and then we experience a small recovery– in terms of economic numbers. But the path to actual recovery is still steep and the Federal Reserve, whose policies impact the dollar index price, is likely to remain accommodative for an extended period of time.