August 21, 2020

US Stock Futures Up, Ignorance or Optimism?

US Stock Futures Up, Ignorance or Optimism?

European and U.S. futures are climbing higher today as the coronavirus stock market rally is still very much supported by tech stocks. Investors have ignored the dismal U.S. Unemployment Claims number, which moved higher once again yesterday. Investors are too keen to buy technology and software related stocks and especially those stocks that are addressing the current pandemic challenges. This is despite the fact that there are genuine concerns about lofty valuations among investors, as we mentioned yesterday.

Ignorance or Optimism?

Ignoring a bumpy recovery could be an act of bravery, or pure ignorance – only time will tell which one it is . The U.S. Initial Jobless Claims jumped over 1.1 million once again yesterday. Last week, the US Initial Jobless Claims number addressed some of the concerns that the US labour market is in the recovery phase and the economic data isn’t rolling over. However, the surge in the U.S. initial jobless claims number this week has renewed those concerns.

Recovery Path 

We simply do not know how long this recovery path will be, and how much time it will take for the Initial Jobless Claims number to fall again. Then there is also an element of the scars left behind—these are those jobs which will be lost permanently due to a shift in behavior and industry, as a result of coronavirus. All of these elements are of significant importance and perhaps the retail investors may not be paying much attention to them, but the smart money most certainly is.

Coronavirus Vaccine 

Another factor which is driving the U.S. futures higher today and it has mostly pushed the U.S. stock market higher is the optimism about a potential coronavirus vaccine. The fact that Pfizer’s potential vaccine trial is on track for regulatory review in October is also fueling hopes that economic activity will begin to look a lot better than it is today. Also, it is not just Pfizer that is in the potential coronavirus vaccine race, but there are other companies that are more or less equally enthusiastic and feverishly working towards finding a potential vaccine.

China Ready to Talk 

Lastly, the U.S.-China trade tensions are also in focus. China confirmed yesterday that it has plans to begin the process of the trade review with the U.S. officials. Beijing’s announcement surprised investors because the U.S. has adopted a strong stance against the country and Trump has labeled the coronavirus as “China virus”, yet China hasn’t pressed hard against the U.S. Traders are somewhat concerned about the trade review because Trump mentioned before that he has already walked away from trade talks with China.  

No National Lockdown

Over in Europe, there are some real concerns that there could be another lockdown on a national level. German Chancellor, Angela Merkel and French President, Emmanuel Macron have both opposed the idea of a national lockdown at any cost. For them the economic disruption is too great and the European Central Bank has very little ammunition left to combat a similar situation again. Both leaders have made it clear that national lockdowns should be prevented at all costs, by implementing precautionary measures and strict rules. 

Gold Below 2,000

The precious metal continues to trade lower and is still trading below the critical level of 2,000. Investors are hoping for the bullish momentum to continue as there are many factors which are supporting the bull case for the metal. Some of these are lower interest rate in the U.S., weak economic recovery, coronavirus hot-spots, uneven stock market recovery, lofty valuations and the on-going geopolitical tensions between the US and China.