October 1, 2020

Stock Rise On Stimulus Hope

Stock Rise On Stimulus Hope

European markets and the U.S. futures are trading higher today. Investors are still hopeful for more stimulus despite the fact that we saw a breakdown in stimulus talks between House Speaker Nancy Pelosi and U.S. Treasury Secretary yesterday. However, Pelosi and Mnuchin are expected to talk again today on the subject of stimulus.

More Stimulus Needed

There is no doubt in saying that the U.S. economy needs more help, and in the absence of such help, we are very much likely to see more job losses for the U.S. economy. Reports of fresh job cuts are coming thick and fast as businesses are trying to cut their costs. There is no industry that has cut more jobs than the U.S. airline sector, as the coronavirus pandemic has broken the airline sector’s back.

Airlines know that it will take a long time for them to recover, and it is highly likely that some parts of the business may never come back to the way they were due to the change in the working environment. The U.S. airline industry is in dire need of more support, and if lawmakers do not get their act together, the U.S. unemployment numbers are going to tick higher very fast.

Having said that, the U.S. stock market isn’t paying that much attention to this aspect. That is because yesterday, we saw another major rally for the U.S. stock indices. The Dow Jones, the S&P 500, and the Nasdaq are all above their critical price levels, which is the 50-day simple moving average. Clearly, traders are not worried about economic weakness, and they are pinning all of their hopes on the fiscal support and more help in terms of monetary policy.

However, if companies continue to cut jobs at the current pace, it will be only a matter of time before the stock market meets a harsh reality. When, and if that happens, the stock market will not drop; it will tank like there is no tomorrow. That is because, at that time, investors and traders will lose their confidence in both monetary and fiscal support.

Nonetheless, the major US stock indices are back in positive territory for this year. In fact, the S&P 500 is set to record the best yearly gains since 2019. It is incredibly difficult to digest and agree with these numbers when we know that companies like Disney, Dow, Shell, Continental, Marathon Petroleum, and many others have announced so many job cuts. There will have to be implications of this on the stock market, but for now, there is none of that. 

Economic Numbers

In terms of economic events, today, we have the U.S. Weekly Jobless Claims data and the U.S. Manufacturing PMI. The forecast for the weekly Jobless Claims data is 850K, while the previous reading was for 870K. As for the U.S. Manufacturing PMI, the forecast is 56. 

This will be the last piece of important information before we see the U.S. jobs report. The tone is set for a positive number as the U.S. ADP Employment number surprised the markets by beating the forecast.

Bulls Are Back

The bulls are back in the market for the precious metal, and they are ready to push the gold price higher. The gold price has made a high of 1900 as investors hedge their bets ahead of the most important economic reading, the U.S. NFP. The fact that the gold price remained above the 100-day SMA on the daily timeframe is another promising sign for the bulls. The odds are stacked in favour of a higher gold price in the coming days, especially because the U.S. elections are just around the corner, and investors want to protect themselves from this major risk event.