- S&P 500 posts all-time high, helped by a tech rally after US home building data soared
- NASDAQ notches 34th record this year
- Treasuries extend rally, dollar rebounds ahead of Federal Reserve minutes
Key Events
Despite new records for equity indices during Tuesday's Wall Street session, on Wednesday, US futures for the Dow Jones, S&P 500, NASDAQ and Russell 2000 all wavered, along with and European stocks after harsh words by President Trump accelerated fears of rising US-Sino trade tensions.
The Treasury rally continued; the dollar found its footing, pressuring gold. Bitcoin slumped for second day. Oil stalled.
Global Financial Affairs
US contracts edged higher after whipsawing earlier this morning, with S&P 500 and NASDAQ futures adding to records of their underlying benchmarks.
After initially declining with German utility RWE (DE:RWEG) and other sector shares, the Stoxx Europe 600 Index received a boost from travel stocks, even after Finland imposed tighter border restrictions.
Asian shares were uneven, with the US-China diplomatic fallout adding to investor worries. The negotiations haven't been rescheduled President Donald Trump abruptly explained, "You know why? I don’t want to deal with them now."
Australia’s ASX 200 climbed to a five-month high, (+0.7%), spurred by financials and drugmaker CSL (ASX:CSL), along with a lower coronavirus infection rate. At the opposite end of the spectrum, China’s Shanghai Composite dropped, (-1.25%), as investors cashed out of healthcare and tech stocks after a three-day straight rise, which culminated with a $100 billion PBoC injection into the banking system.
Yesterday, during the New York session, US stocks climbed, assisted by a rally in tech shares and better than anticipated housing data. Homebuilder stocks jumped after data demonstrated housing starts had soared, up 22.6%, the most since 2016. Shares of Lennar (NYSE:LEN) and DR Horton (NYSE:DHI) have each gained about 150% since the March bottom.
The S&P 500 Index finally achieved a new high, in record time to boot, after having fallen 20% during the COVID-19 market drop. All told, the benchmark recovered 52% from its March bottom, with tech stocks carrying the broader index, enabling it to surpass its Feb. 19, pre-pandemic record, after three failed attempts in the past four sessions.
The NASDAQ Composite notched its 34th record for the year.
With US stocks not only returning to pre-COVID levels but actually posting fresh records, it might be time for investors to decide: with the global pandemic seemingly improving and a Fed’s “infinite QE” safety net are equities still a good bet? Or, is this is a party that started too early, even as the economy could remain in recession for some time to come.
As readers are aware, here's what we've been asking for some time now: can the Fed keep pumping up the economy without any consequences? Or will there be a day of reckoning at some point?
Despite the SPX joining the NASDAQ at record highs, the VIX not only did not close the gap since the coronavirus selloff, but it rose for the past two days.
Yields, including for the 10-year benchmark Treasury, fell for a fourth straight session.
Rates were pushed back below a downtrend line since the March 19 high—the previous record. One might have expected that yields would be back at 1.25% area, rather than 60 basis points lower, and back within a downtrend line, which is possibly the top of a descending triangle, an innately bearish pattern where supply subsumes demand.
The dollar appears to have found demand after completing a bearish pennant.
The global reserve currency is down double-digit percent since the March highs and technicals are signaling it's heading lower. China Banking Regulatory Commission Chairman Guo Shuqing says the unprecedented amount of Fed stimulus could trigger a global crisis. While he may be right, as a member of China's Communist Party he may also have an additional agenda since China is trying to compete against the US for world currency dominance.
The dollar's strength pressured gold.
This has set in motion a pattern of one down-day for every two up-days. While the yellow metal continues to trade within a rising channel, indicators have turned bearish since last week’s selloff.
Bitcoin is down for a second day, for the first time since July 16.
Indicators suggest the price of the cryptocurrency may have topped out, after having reached the highest level since July 2019. While bulls have pushed back, and BTC is off session lows, its moving away from the trend line would mark the top.
Oil dropped following a report showing surging US gasoline stockpiles ahead of the next OPEC+ meeting to address the cartel’s supply management.
While trading has been lethargic since June, the price may be forming an hourly H&S continuation pattern, targeting the Aug. 5 highs.
Up Ahead
- Earnings results from Alibaba (NYSE:BABA) and Qantas Airways (OTC:QABSY) are due Thursday.
- Minutes of the July FOMC meeting will be published on Wednesday.
- The EIA’s crude oil inventories report prints Wednesday.
- U.S. initial jobless claims for the week ended Aug. 15 are due Thursday.
- Eurozone PMIs will be released on Friday.
Market Moves
Stocks
- The Stoxx Europe 600 Index dipped 0.2%.
- Futures on the S&P 500 Index were little changed.
- NASDAQ futures fell 0.1%.
- The MSCI Asia Pacific Index decreased 0.2%.
Currencies
- The Dollar Index advanced 0.1%.
- Sterling was little changed at 0.9013 per euro.
- The Japanese yen weakened 0.1% to 105.53 per dollar.
Bonds
- The yield on 10-year Treasuries dipped two basis points to 0.65%.
- The yield on two-year Treasuries declined less than one basis point to 0.14%.
- Britain’s 10-year yield fell two basis points to 0.203%.
- Germany’s 10-year yield decreased two basis points to -0.48%.