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Stocks Drift Sideways As Stimulus Talks Continue

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Commenting on the stimulus talks and today’s trading Gorilla Trades strategist Ken Berman said:

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Q3 2020 hedge fund letters, conferences and more

Uncertainty Remains As Stimulus Talks Continue

The mood on the Street remained nervous due to the continued coronavirus stimulus uncertainty and despite the bounce in the tech sector, today’s session leaned bearish. Even though the morning session saw a nice bounce in stocks, the major indices failed to erase yesterday’s losses, and it seems that the rally would need more bullish catalysts to resume in earnest.

Despite a bearish start to the day, most of the key sectors finished little changed following a very choppy session. Cyclical issues were mixed, even as the energy sector, as measured by the XLE ETF (XLE, +3.1%) hit a new nine-month high thanks to oil’s breakout, with industrials showing pronounced relative weakness. Tech stocks bounced back following yesterday’s steep selloff while materials were buoyed by the rally in growth-sensitive commodities, such as copper, which an almost seven-year high today.

While the ECB didn't disappoint investors today, as it expanded its asset purchase program, a lot of analysts expected further easing measures. The ECB's QE program had only limited effects on lending activity in the Eurozone, despite pushing government bond yields to record lows, and today’s meeting confirmed that the ECB is all but out of “ammo”. The euro gained ground against the dollar in the wake of the ECB’s announcements, and next week’s Fed meeting just got even more important for bulls.

Airbnb Goes Public

Airbnb (ABNB, +114%) followed in the footsteps of DoorDash (DASH, -2.4%), going public ahead of the holiday season, and the firm's shares opened at more than double of their Initial Public Offering (IPO) price this afternoon. The successful IPOs could be a confidence boost to the broader market and the battered travel and tourism industries, in the case of Airbnb, as they show that investors trust the recovery even in hardest-hit sectors. The most COVID-sensitive issues had a solid session in the choppy environment, and they remain relatively strong compared to the large-cap benchmarks.

The week will end with the busiest day of economic releases, with the stimulus talks and the last-ditch Brexit talks also having the potential to stir up financial markets. The Producer Price Index (PPI) and the Michigan consumer sentiment number will be out tomorrow morning with the European Union’s (EU) economic summit highlighting the overnight session. While growth in the manufacturing sector remains robust, the consumer economy and services could be in trouble in the coming months, so the trends in consumer sentiment will be closely watched.

Most Sectors Are In The In The Green On A YTD Basis

With only three weeks until the end of this extraordinary year, it might be a huge surprise for most that nearly all of the main sectors are in the green on a year-to-date basis. The tech sector and consumer cyclicals surged higher by over 40% in 2020, communication services gained 22% this year, but materials, healthcare stocks, and materials are also up by double-digits. Even though the energy sector is the best performing one since September, it’s still down by over 30% this year. Only financials, utilities, and real estate stocks are in the red apart from energy stocks, and all of those sectors stand a chance to recover their losses in the coming weeks.

The price of crude oil broke out from a short-term consolidation pattern today, despite the mixed trends among risk assets, proving that the underlying bullish trend is in no danger. The WTI contract is getting close to the crucial $50 per barrel price level, and with the commodity being well above both its 50- and 200-day moving averages, the rally will likely continue in the coming weeks and months. Oil was a leading indicator during the turbulent months of pandemic, so even though U.S. stocks could be facing a period of consolidation following their historic move to record highs, a major reversal is unlikely. Stay tuned!


  • The major indices finished mixed following yesterday’s broad-based selloff while the Russell 2000 scored another all-time closing high
  • House Speaker Nancy Pelosi told the press that “there has been great progress on the stimulus talks”, but a deal still hasn’t been struck
  • The FDA will likely approve Pfizer’s (PFE, +0.1%) vaccine candidate this afternoon
  • The price of crude oil hit its highest level since the start of the pandemic despite the surging infections in the U.S.
  • The European Central Bank (ECB) boosted its quantitative easing (QE) program by $620 billion amid the risk of a double-dip recession in Europe

Market Wrap

Index G/L Current level Year-to- date 50-day 200-day
Dow -70 29,999 5.3% 28,776 26,287
Nasdaq 67 12,406 38.2% 11,737 10,192
S&P 500 -5 3,668 13.6% 3,512 3,170
Russell 2000 21 1,923 15.2% 1,689 1,464

Advancing issues outnumbered decliners by a less than 6-to-5 ratio on the NYSE today, with 80 stocks hitting new 52-week highs and only 2 stocks hitting new 52-week lows, while volume was well below average.

Price Action Gauge ******** (reading for 12/10: 70)

The bullish short-term trends are still clearly intact, even as today’s mixed session raised some doubts about the strength of the rally, and it’s too early to call the end of the run-up, especially as small-caps regained their relative strength in the afternoon.

Oversold/Overbought Gauge ******** (reading for 12/10: 18 Color: green)

Today's session hasn't changed the fact that the major indices are all overbought due to November's record-breaking rally, and stocks remain vulnerable to an orderly pullback.

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