September 22, 2020

Stock Futures Mixed, Virus Fear Continue to Grow

Stock Futures Mixed, Virus Fear Continue to Grow

The global stock market got battered yesterday and got the week off to a terrible start. There was no place for investors to hide their money as all the S&P 500 sectors faced heavy selling. Stocks in both Europe and in the U.S. had their worst day since July. 

However, the European markets are trading higher as investors begin to bag some bargains, while the U.S. stock futures are still set to extend yesterday’s losses. However, this could change if Europe continues to trade higher as there are some signs for this bearish momentum easing off.

The stock’s weakness is chiefly triggered because traders are highly concerned about targeted lockdowns that are taking place across the world, as coronavirus cases continue to surge.

In the U.K., Prime Minister Boris Johnson is set to announce new restrictive measures to control the Covid-19 cases. What worries the investors most is if these targeted lockdowns remain ineffective and are then replaced by stronger measures, such as the national lockdowns we saw back in March this year.

Introducing national lockdowns are now the last choice for any Government as they come with a high cost. Moreover, implementing another national lockdown will also likely undo most of summer’s recovery. This means that the unemployment rate that is being kept low artificially in a large number of countries via government support will start to rise again. Later today, we will see the U.K.’s Prime Minister introducing new restrictive measures as the country has increased the COVID threat level to 4, from 3. 

Back in the U.S., the Dow Jones and the S&P 500 500 recorded their fourth consecutive day of losses, the longest losing streak since March. The retail, hospitality, and travel sectors were the one which saw their values depreciating the most as speculators increased their bearish bets against these sectors. Traders believe that if the situation continues like this, it is a given that a large number of bankruptcies will be inevitable.

The price action for the U.S. indices on the weekly chart still looks feeble. However, we did see life coming back to the tech sector yesterday. This helped the Nasdaq index to bounce off its lows of the day. Nonetheless, the index still closed in negative territory, but with minor losses. 

In terms of the precious metal, gold is holding on to its critical support level of 1,900. Yesterday, the metal came under immense selling pressure as the dollar index bounced off its lows. Investors will monitor Jerome Powell’s testimony today and look for more clarity with respect to the Fed’s new monetary policy. The hope is that the Fed Chairman will be able to drop some clues that will calm the market’s nerves.

After all,  the current tumultuous price action in the stock market started as a result of the Fed’s monetary decision, during which it failed to provide more clear answers for the market participants.

In terms of the gold price level, keep on eye on the 100-day simple moving average as the gold price did break the 1,900 mark yesterday, but it stayed well above the 100-day SMA. As long as the price stays above this moving average, and also above the 1,900 price level, the chances are that bulls will take control once again and push the metal prices higher.