Commenting on a future Covid-19 stimulus deal today’s trading Gorilla Trades strategist Ken Berman said:
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The steep drop towards the end of the session shows that stocks could be vulnerable to negative catalysts following November’s lofty gains. Even though the S&P 500 and the Nasdaq both hit new record highs today, the rally lacked momentum, and Pfizer’s concerning announcement was enough to erase the major indices’ gains.
The surprisingly positive stimulus developments had the biggest impact on the main sectors today, although the late-day selloff substantially reshaped the market. The energy sector was the strongest performer yet again, while real estate stocks, industrials, and materials also shined ahead of Pfizer’s announcement. Financials and defensive issues struggled throughout the session, as Treasury yields dropped amid the hopes that another fiscal package will be passed this year. The tech sector held up well before the closing bell, and it will be interesting to see how “stay-at-home” stocks will react to the possible vaccine delay.
What Can We Expect From The Next Covid-19 Stimulus Deal
With the two sides getting closer to an agreement, the structure of the bipartisan Covid stimulus deal could prove to be crucial for the short-term trends on Wall Street. The package, which will likely be the foundation of a future Covid stimulus deal focuses on small businesses, state and local government aid while containing a much smaller $300 per week extra unemployment benefit. Small-caps showed strength today on the upbeat words of Senate Majority Leader McConnel, with the hardest-hit industries also pushed higher, which could be a preview of what we should expect, should the package be accepted.
Energy-related issues had a volatile week following one of the sector’s most bullish months on record, as the OPEC+ group, the members of the Cartel and Russia, tried to negotiate a new supply deal. Even though the talks seemed to be breaking down earlier this week, today’s agreement is promising for the sector, so it’s no surprise that the price of oil and energy stocks finished markedly higher. As always, implementing the OPEC’s plan will be tricky, especially as a lot of members will be under immense pressure to increase their output due to the COVID crisis.
The week’s most important economic release, the government jobs report will be out tomorrow before the opening bell, and with the recent mixed job market indicators in mind, we could be in for a volatile morning across asset classes. Non-farm payrolls are forecast to increase by 500,000, the unemployment rate is expected to tick lower to 6.8%, with hourly earnings climbing by 0.1%. Factory orders will also be out tomorrow, so industrials could get another boost even as orders are only expected to increase by 0.8%.
Manufacturing Sector Recovery Is On Track
The manufacturing sector has been experiencing robust growth for several months, and even amid the new wave of outbreaks, the recovery is firmly on track. Industrials, as measured by the popular XLI (XLI, +0.1%) ETF led the rally in cyclical issues thanks to the positive trends and the sector surged to a new all-time high last month. As the XLI was stuck in a consolidation range for two-year before the pandemic struck, it has plenty of upside potential in the coming months and years, should the current breakout to new highs prove successful.
The Treasury market has seen wild moves this year as the pandemic unfolded, but with the vaccine now around the corner bonds could start to behave more predictably. From a technical perspective, the 1% level in the 10-year yield is at the center of attention, and in the case of a breakout, we might be in for a multi-year advance. That said, the fiscal and monetary policies of the coming months will be crucial for bonds and stocks alike, and technicals could be of huge help in making sense of the tumultuous political situation. Stay tuned!
- Stocks gave back most of their gains in the last hour of trading on the news that Pfizer’s (PFE, -1.7%) vaccine could be facing production delays
- The two parties are getting closer to a stimulus deal,
- COVID-related hospitalizations and deaths hit new all-time highs in the U.S., but infections might already have peaked according to the latest data
- New jobless claims declined unexpectedly following two negative weeks while continuing claims dropped by more than 500,000 again
- The members of the OPEC agreed to gradually increase their crude oil output in the coming months after days of fierce negotiations
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Advancing issues outnumbered decliners by a more than 2-to-1 ratio on the NYSE today, with 93 stocks hitting new 52-week highs and no stocks hitting new 52-week lows, while volume was in line with the average.
Price Action Gauge ******** (reading for 12/03: 74)
Price action deteriorated slightly today, even considering the all-time highs in the Nasdaq and the S&P 500 and some of the key breadth measures are showing negative divergences as well, but the bullish short-term trends are still clearly intact.
Oversold/Overbought Gauge ******** (reading for 12/03: 24 Color: green)
The large-cap cap benchmarks are still overbought, which could be behind the weak bullish momentum, so a period of consolidation or even a pullback might be ahead before the rally resumes in earnest.
If you wish to speak with Mr. Berman, please contact me at firstname.lastname@example.org or 215.460.8149.