US stock indices paused a five-day rally in New York, dragged lower by financial, industrial and energy shares. US treasuries and gold gained.
Worries about the rising number of new Covid cases, prospects of a bumpy and slow post-crisis recovery, topped by Donald Trump threatening China with more executive orders including new restrictions on imports were brought forward as the euphoria following the government-fueled rally in Shanghai fast faded.
Good news was bypassed by investors. The US funding to support the development of a Covid vaccine didn’t whet investors’ appetite in healthcare stocks.
Meanwhile, the JOLTS data had little impact on the market mood despite printing nearly 5.4 million job openings in May, versus 4.8 million expected by analysts.
Although we believe that the market has multiple reasons to value most share prices lower, the expectation of more monetary and fiscal stimulus tends to temper the headwinds. Recently, we couldn’t find solid bull-market drivers other than the additional stimulus hopes. But the markets moved higher with firm steps.
While the rise in technology stocks were reasonable given the sharp increase in their online services demand, other share prices kept on rising as well despite their highly damaged underlying businesses.
Hence, we are brought to believe that if the market is willing to carry the stock rally further, it will find a reason to do so. In this respect, the forthcoming $1 trillion US stimulus should better the mood and limit the downside correction in equity prices.
Trading was mixed in Asia. US futures were flat to negative. The ASX 200 (-1.10%) slid, Nikkei (-0.61%) extended losses as yen appreciated. Shanghai’s Composite added another 0.77% on the remaining Monday optimism, and the Hang Seng (+0.14%) was little changed despite rumours that the US could undermine the HKD’s dollar peg to limit the Hong Kong banks’ ability to purchase US dollars as another sign of disapproval for the city’s new national security law.
Activity in British and European futures hint at a bearish start on Wednesday.
