June 24, 2020

US Futures Trade Lower

US Futures Trade Lower

The Dow Jones futures hold steady while traders continue to weigh their appetite for riskier assets. Yes, we are moving higher in terms of US equity markets. Still, the reality is that this is one of the most hated rallies on Wall Street among professional traders who believe that there is a significant disconnect between the actual economy and the stock market rally. Also, most of the strength that we see in both the US economy and around the globe arguably comes from fiscal and monetary policies. 

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The S&P 500 futures, along with Dow Jones futures are likely to remain sensitive to coronavirus second wave, US-China trade-related news, and economic data. Steven Mnuchin, the US Treasury secretary, believes that the US may be out of its recession by the end of this year.

In my opinion, this is only possible if the US can control the spread of coronavirus. Mnuchin expects China to honour the trade deal but also believes “decoupling” remains a possibility. Again, it is China that the Trump administration is addressing.

Beijing is unlikely to respond well to any threatening behaviour. Controlling the coronavirus spread is one element, and arresting the US economy from falling into another trade war that the US cannot afford is a whole different world. 

The DJIA and S&P 500’s market breadth shows there are over 33% and 41% per cent stocks that are trading over 200-day smooth moving average respectively. 

The global stock market’s strength doesn’t look very solid today, as Asian markets closed the trading day very mixed. Additionally, momentum doesn’t seem to be very strong over in the European markets, even though we had some strong economic reading over in the Eurozone yesterday. 

Here is more on these topics:

Dow Jones And S&P 500 Futures Today

The Dow Jones futures are trading mostly flat, the DJIA index’ is set to face many whipsaws today. The Dow Jones futures have traded between gains and losses during the early morning price action, and this shows bulls may not be able to hold the momentum today. 

The Dow Jones’s daily chart shows that the Dow has failed to close above the 200-day moving average. We see another failed test of the 200-day moving average, and this confirms that there is enough selling pressure for the DJIA index. But hopes are alive because the Dow Jones Industrial average is still trading above the 50 and 100-day moving averages. 

The DJIA index’s weekly chart shows that we are still within the trading range of last week. The focus is on the 50 and 100-week smooth moving averages, and if the Dow stocks can push the index above these averages. 

The S&P 500 index shows a better representation of the overall stock market, and it confirms that there is a tug war between bulls and bears. In simple words, there is no clear direction, and hence we see more consolidation for the S&P 500 stock index. 

Stock Market Rally

 The US stock market rally had another positive day yesterday, and the major indices closed with modest gains. The S&P 500 stocks failed to hold on to their gains because traders booked profits due to surge in coronavirus cases in several hotspots. However, there are still hopes that trillions of dollar support in terms of fiscal and monetary policy support should continue to spur the stock market rally not only in the US, but also around the globe. The reality is that it is difficult to measure the actual recovery in terms of economic sentiment and data when large parts of the economy are on emergency measures such as furlough schemes in the UK and stimulus checks in the US.   

For instance, the unemployment rate over in the UK has been kept artificially low due to the furlough scheme, and the moment the government starts withdrawing its support, the consequences will begin to appear. The current unemployment rate could jump far above 20%. 

Similarly, over in the US, we have seen massive support from the fiscal policy front, and the Treasury Secretary, Steven Mnuchin is talking about another stimulus package to help Americans. We may likely see the stimulus package coming into the light in July, which is next month. According to his own words, “it is something we are very seriously considering”. 

The S&P500 index closed higher yesterday by 0.43%, and the Dow Jones increased by 0.50% yesterday. Once again, tech stocks led the gains for the S&P 500 index. 8 out of 11 sectors closed in positive territory. American Airlines stock was out of luck and remained the most significant drag on the S&P 500 index. 

The S&P 500 is trading at a price to earnings ratio of 22 on a trailing basis, and the dividend yield is 1.93% on a trailing 12-month basis.

The NASDAQ–tech-savvy index–continued its record high and closed higher with a gain of 0.78%. 

 Coronavirus: EU Travel Restrictions and New Cases 

The recent spike in coronavirus is due to the Covid-19 spreading in the US not because of the testing result, Anthony Fauci, the US government’s top infectious disease expert, said yesterday. He told White House that the next few weeks are critical to bringing down the resurgence of coronavirus.

California and Texas have seen another record daily jump in their coronavirus cases, and infection rate in Florida has also soared above the critical 10%. States are going to continue to fight this virus, and it seems like they are trying their best not to close their economies. States are fighting an uphill battle, which is not easy to win as it was evident from the governor of Texas’s comments who recently said that he is not in favour of imposing a lockdown. According to Anthony Fauci, the country is pinning its hopes on a coronavirus vaccine, and there won’t be one until early next year. 

The EU will be easing off its travel restrictions from next month, and lists are being prepared for countries from which travelers will be allowed. Given the fact that the US hasn’t controlled the virus very well—one of the criteria for the entry list–there are concerns that the US may be on the wrong list. If this turns out to be a reality, EU officials will probably face a backlash from President Trump. The final decision is likely to be out by early next week, and this could become spur geopolitical tensions between the US and the EU. 

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Trump News: “TrumpKillsUS” A Major Twitter Trend 

Trump made no mention of the killing of George Floyd, a Black man killed in police custody, in his speech in Arizona. Trump even went one step further and united himself with law enforcement, failing to show any sympathy for Americans who are protesting against police brutality. 

“TrumpKillsUS” is another major trend on Twitter with over 72.3K tweets. Currently, it is in fifth place with a team of people trying to push this to the top spot. Ahead of the elections, which may appear far away for now, trends like these could create more obstacles for President Trump and the stock market.