The Dow Jones futures are starting the third quarter in a muted fashion as most of the stocks are edging lower. There is consistent uncertainty regarding the question, will the recovery in Chinese economic data outweigh the spikes in coronavirus cases in the US? The Chinese economic numbers are printing encouraging numbers and providing further evidence that the world’s second-biggest economy has some serious momentum behind it. The Chinese Caixin manufacturing data released overnight printed another stellar reading of 51.2. It is no coincidence that we have two back to back strong readings for Chinese Caixin manufacturing; it confirms that China has not only contained the spread of the virus, but its economy has started to boom again.
Geopolitical tensions are something that can break the back of this coronavirus stock market rally. The US has vowed to punish China after Beijing implemented the new national security law in Hong Kong. No one wants to see the two nations locking themselves in another tumultuous situation. We already know that the US-China trade war last year yielded nothing but unnecessary uncertainty in the markets.
The Federal Reserve chairman, Jerome Powell, sent a clear message to the Senate and for the markets that any recovery for the economy is very much dependent on controlling coronavirus. The message was clear that if we can control the spread of Covid-19, we can be on track sooner than the currently anticipated time period. But if the situation continues to get out of control, the recovery time frame is likely to stretch longer.
The S&P 500 futures, along with DJIA futures, are also firmly focused on the US ADP non-farm employment change. This data sets the tone for the US NFP, which is due tomorrow. The forecast for US ADP employment is for 2900K against the previous reading of -2760K. Clearly, the bar is set very high, and if the actual number is better, it will create a massive positive shift in market sentiment. In fact, this could be the catalyst that bulls have been waiting for to push the stock market into a new range, because so far, we are stuck in a consolidation range.
Gold prices topped 1,800 yesterday, a significant milestone. The door is wide for the prices to surpass the all-time high of 1927. Gold prices have recorded seven consecutive quarters of gains, and this is the biggest winning streak since the financial crisis. The exciting factor is that there is more to come because the Fed is likely to be locked in a low-interest-rate environment for an extended period of time.
Here is more on this:
NASDAQ Stocks Records Best Quarter Among S&P and Dow Jones
The S&P 500 chart shows that the US stock market had the best quarter in over a decade, as I mentioned yesterday. All three major US indices have posted substantial quarterly gains, but the NASDAQ NDAQ index takes the lead in terms of percentage gain for the second quarter. S&P 500 and Dow Jones scores the best quarterly performance since 1998 as the chart shows below
The Dow Jones has also recorded the best quarterly performance since the financial crisis as the chart below confirms.
Going forward, what is quite important is whether the current V-shape recovery in the US equity markets can really continue. Of course, the two most critical factors are likely to remain the same: coronavirus and US-China relationship.
Market Breadth: Dow and S&P 500 Index
The stock market’s breadth shows that bulls are gaining more grounds because 33% of the Dow Jones stocks are trading above the 200-day moving average. Yesterday, we had 27% of stocks trading above their 200-day moving average.
The S&P 500 index confirms that 39% of the stocks trading above their 200-day moving average; this is an improvement of 3%.
Dow Jones and S&P 500 Futures Today
The Dow Jones futures are trading lower by 156 points as traders are a little cautious ahead of major economic data: the US ADP reading.
The Dow Jones futures almost tested the 100-week moving average on a weekly time frame yesterday. We are still trading below the 50 and 100-week, which means that the bulls still need to clear these two obstacles before the rally can continue.
The S&P 500 index’s weekly chart shows more strength as the price is above all of the three critical moving averages: 50, 100, and 200-week smooth moving averages. S&P 500 stocks are likely to continue their journey to the upside, but it is crucial to keep in mind that we are still trading within last week’s range.
Stock Market Rally
The S&P500 index jumped 1.54% yesterday. All of the 12 sectors closed in positive territory, and the information technology sector led the index’s gains. The volume for the S&P 500 index was a little light, and this raises some alarm bells for the coronavirus stock market rally.
The Dow Jones index also scored 195 points and surged 0.85%. 26 out of 30 Dow Jones stocks closed with gains.
The NASDAQ composite crossed above the 10K mark once again yesterday and closed with a gain of 1.96%.
Coronavirus: Anthony Fauci Warns of 100,000 Cases A Day
Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, once again raised alarm bells when he told the Senate that he is not pleased with the current situation. If the pandemic isn’t controlled, we could see up to 100,000 Covid-19 cases a day. In his Senate hearing, he didn’t show much confidence regarding the current coronavirus situation.
This does not support the risk-on sentiment, but of course, traders have not paid much attention to his warnings or pessimism as the evidence of this is buried in the second quarter’s stock market performance.