U.S. and European stock futures are trading lower today after a stunning rally yesterday. There is no doubt that we could easily see several episodes of this in the coming days and weeks. Yesterday’s stock market rally reminded us of the time when the global stock market reacted to the first potential coronavirus vaccine trial news. The moment we started to hear that companies have started the potential coronavirus vaccine trial, the global stock market rallied.
Following that, it became normal that every headline of a potential vaccine would bring an easy one thousand point move for the Dow Jones. Now, we can expect the same scenarios playing out again. This is because Pfizer is not only the company that will come out with encouraging results. In the coming days, we will see several other companies also announcing their results, which could be very similar, and this can continue to fuel the global stock market rally.
The Scary Bit
Overall, looking at the S&P 500 futures, the price action looks scary. This is because the S&P 500 futures closed well off its highs yesterday. For investors and traders, we have a new range formed, and as long the price continues to trade between these zones, consolidation is the most likely outcome. The new range is defined by the resistance of 3667 and low of 3246—that is the high of this week and the low of last week.
In terms of sector rotation, it is highly likely that work from home stocks may continue to face more pressure in the coming days. Any positive news on the potential coronavirus vaccine is likely to squeeze more blood out of this trade. Yesterday, stocks like Netflix and Zoom got absolutely battered. Despite the intense sell-off, these two stocks are still up with solid gains. It is likely that in the coming days, this particular sector may attract new capital because Covid-19 has changed our behaviour and work routine so long-term subscriptions do still matter. The sectors that are likely to see massive inflow will remain the tourism and hospitality sectors; they have been badly beaten down. Yesterday’s rally already has helped companies like Ryanair erase their yearly losses, which comes when the company hasn’t even started half of its load.
As for the coronavirus, we had more good news last night, this time from Eli Lilly. The company’s antibody therapy, which keeps patients away from hospitals, got the green light for emergency use by the U.S. drug regulators. The company’s stock extended its rally in after-hours trading, and we are expecting this momentum to continue.
Overall, it does seem like that there is not only light at the end of this tunnel, but we are close towards the end of this tunnel. The reason is that that in the coming days and weeks, we will hear from other companies which are also working on a potential vaccine for coronavirus, such as Moderna and J&J. Their results are imminent, and we could see several episodes like yesterday.
Can We Buy Gold ?
Gold prices fell off the cliff yesterday as investors largely favoured risk-on assets. Gold prices moved more than 80 dollars yesterday, one of the biggest daily moves in a long time. Investors sold Gold so sharply yesterday because they believe that monetary support may change as we have the Covid-19 Vaccine now.
However, the reality is that Covid-19 has left deep scars on the global economy, and they are not going to go away that easily. Central banks will remain reluctant to pull off their support prematurely. They will continue to assess the data very closely and the economic conditions, and only then they will take appropriate measures with extreme caution. No one wants their hard work undone that easily. Therefore, any level above 1850 remains strong support for the gold price for now, and the chances are that prices continue their battle with the 1900 price level.