US Stock Market Overview – Stock Rally Led by the Nasdaq; Microsoft and Semis Drive the Gains

US stocks moved higher on Monday, as traders anticipated a deal between the White House and Congressional Democrats. Most sectors in the S&P 500 index were higher, led by Healthcare. Real-estate bucked the trend. The Nasdaq hit a fresh new record high, led by gains in Microsoft and the Semis. The VIX volatility index hit a fresh 5-month low at 22, before rebounding into the close to settle near 24.40. Apple shares continued to rally climbing nearly 3% on Monday after notching up a 14% gain last week.

Manufacturing in the US accelerated the most in 16-months, which is a forward-looking index. This helped buoy US yields which in turn help the US dollar rebound. The dollar rebounded putting pressure on precious metals, but oil and natural gas rallied helping to buoy the energy space. Natural gas prices surged 16% on Monday on a warm weather forecast. Microsoft confirmed that it would work out a deal to purchase Chinese company TikTok from Byedance. President Trump said that he would want part of the sale to come to the American People. This enraged some businesses in China.

ISM Manufacturing Accelerates by the Fast Pace in 16-months

U.S. manufacturing expanded in July at the fastest pace since March 2019. The Institute for Supply Management reported that its manufacturing index rose to 54.2 last month from 52.6. Expectations were for a reading of 53.6. The ISM’s measure of production increased in July to 62.1, the highest level since August 2018, and a gauge of orders climbed to 61.5, which was the strongest since September of that year. Customer inventories fell to 41.6 in July, the lowest this year and showing that stockpiles were shrinking at a faster pace. Factory inventories also declined after barely growing a month earlier.

Natural Gas Price Prediction – Prices Surge More than 16% on Warm Weather Forecast

Natural gas prices broke out on Monday, as short were squeezed out of the market. Warmer than normal weather which is expected to cover most of the mid-west and east coast over the next 6-10 and 8-14 days generated a surge in prices that buoy natural gas more than 15%. There is one tropical stork in the Atlantic but it is moving up the east coast and will not generate a disturbance to natural gas installations.

Technical Analysis

Natural gas prices surged higher rising 16.5% on Monday. Support is seen near a downward sloping trend line that comes in near 1.92. Resistance is seen near the May 2020 highs at 2.50. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. Medium term momentum is positive as the MACD (moving average convergence divergence) histogram prints in the black with an upward sloping trajectory which points to higher prices.

Demand Rises in Latest Week

Demand rises across all domestic sectors, with power generation reaching a summer high. Total U.S. consumption of natural gas rose by 0.9% compared with the previous report week, according to data from the EIA. Natural gas consumed for power generation climbed by 0.7% week over week, reaching 43.6 Bcf/d on Monday, the highest level so far in summer 2020. Industrial sector consumption increased by 1.3% week over week. In the residential and commercial sectors, consumption increased by 0.6%. Natural gas exports to Mexico decreased 0.9%.

Gold Price Prediction – Prices Consolidate Near All-time Highs as the Dollar Rebound

Gold prices consolidated near all-time highs, as the dollar started to rebound after tumbling for 7-consecutive weeks. US yields moved higher following a report from the Institute of Supply management which showed that manufacturing expanded at the fasted rate since March of 2019. The rebound in yields buoyed the greenback capping upward momentum for the yellow metal.

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Technical analysis

Gold prices consolidated just below all-time highs following last week’s 3.5% rise.  Support is seen near the 10-day moving average near 1,927. Medium-term momentum has turned positive and continues to accelerate higher as the MACD (moving average convergence divergence) histogram is printing in the black with an upward sloping trajectory points to higher prices. Short-term momentum continues to flip flow back and forth between buy and sell signal. The fast-stochastic is printing a reading of 92 above the overbought trigger level of 80, which could foreshadow a correction. The RSI is printing a reading of 82, above the overbought trigger level of 70 which could foreshadow a correction.

ISM Manufacturing Rises More than Expected

U.S. manufacturing expanded in July at the fastest pace since March 2019. The Institute for Supply Management reported that its manufacturing index rose to 54.2 last month from 52.6. Expectations was for a reading of 53.6 median. The ISM’s measure of production increased in July to 62.1, the highest level since August 2018, and a gauge of orders climbed to 61.5, which was the strongest since September of that year.

USD/CAD Daily Forecast – Strong Oil Limits U.S. Dollar Upside

USD/CAD Video 03.08.20.

Resistance At The 20 EMA Stays Strong

USD/CAD tried to gain more upside momentum but faced resistance at the 20 EMA at 1.3450 as the U.S. dollar rebounded against a broad basket of currencies while WTI oil returned back above the key $40 level.

The U.S. Dollar Index continued its rebound and managed to settle above 93.5. However, it faced resistance at the 94 level and pulled back. In case the U.S. Dollar Index manages to get above 94, USD/CAD will have a good chance to develop more upside momentum.

While the rebound of the U.S. Dollar Index was bullish for USD/CAD, the oil price upside limited the American currency’s gains against the Canadian dollar.

For WTI oil, the key level is the resistance at $42.50. A move above this level will likely lead to increased upside momentum and provide significant support to commodity-related currencies including the Canadian dollar.

Today, the U.S. has reported Manufacturing PMI data for July. Manufacturing PMI increased from 49.8 in June to 50.9 in July while analysts expected that it would grow to 51.3. Numbers above 50 show expansion.

Canada is set to provide its Manufacturing PMI report tomorrow.

Technical Analysis

usd cad august 3 2020

USD to CAD did not manage to get above the nearest resistance at the 20 EMA at 1.3450 and declined closer to 1.3400. The nearest material support level for USD to CAD is located at 1.3330. This level has already been tested several times and proved its strength.

The resistance at the 20 EMA has the potential to become a significant obstacle on the way up. At this point, USD to CAD may find itself stuck in a trading range between the support at 1.3330 and the resistance at the 20 EMA.

In case USD to CAD manages to get above the 20 EMA, it will head towards the major resistance level at 1.3500. A move above this level will likely lead to increased upside momentum, and USD to CAD will head towards the next resistance level at the 50 EMA at 1.3550.

On the support side, a move below 1.3330 could trigger a sell-off, taking USD to CAD to the next support level at 1.3270.

For a look at all of today’s economic events, check out our economic calendar.

What To Expect After Walt Disney Earnings

Walt Disney Co. (DIS) reports fiscal Q3 2020 earnings after Tuesday’s closing bell in the United States, with analysts expecting a loss of $0.64 per-share on $12.48 billion in revenue. The stock tread water after missing Q2 profit estimates by a wide margin in May, with shareholders hanging tough as soon as the company reported outstanding subscription growth in the Disney+ streaming service. It’s now trading 15% higher but still below levels broken in the first quarter.

Walt Disney Reopens Florida Theme Park

The Disney World Resort in Orlando, Florida reopened in July, right at ground zero in the U.S.A.’s COVID-19 summer spike. Anecdotal evidence suggests that out-of-state visitors are avoiding the park like the plague but the entertainment giant has offered few specifics. As a result, Wall Street analysts will be listening closely to Tuesday’s conference call, trying to gauge the success or failure of the questionable initiative.

Theme parks are just one of many divisions impacted by the pandemic, with the majority of film production still shut down, forcing Walt Disney to delay the filming of new Star Wars, Marvel, and Pixar movies. The ESPN sports division is struggling as well, with MLB games delayed due to team outbreaks that threaten to derail an abbreviated 60-game season. And, of course, no one expects Disney cruise ships to sail again before the second quarter of 2021.

Wall Street And Technical Outlook

Wall Street Consensus remains highly guarded, with a ‘Hold’ rating based upon 7 ‘Buy’ and 12 ‘Hold’ recommendations. Two analysts believe that shareholders should consider moving to the sidelines at this time. Price targets currently range from a low of $85 to a street-high $146 while the stock is trading $4 below the median $120 target. It’s possible another blowout quarter in Disney+ subscriptions could lift sentiment enough to reach the median target.

Walt Disney is holding up relatively well, given multiple headwinds, oscillating just below the 200-day moving average at 120. Buying pressure eased in June after an oversold impulse, with holding patterns pointing to a wait-and-see attitude by shareholders. A destructive second pandemic wave this fall and winter could shake that faith, generating an exodus that brings the first quarter low back into play.

Oil Gets Back Above $40 As Traders Cheer Encouraging Manufacturing PMI Data

Oil Video 03.08.20.

U.S. Oil Rig Count Falls Again

The recent Baker Hughes Rig Count report showed that the number of active rigs in the U.S. remained flat at 251. Meanwhile, the number of rigs drilling for oil declined by 1 to 180.

The previous report showed that the number of U.S. rigs drilling for oil increased by 1 to 181. Some traders have started to worry that such increase signals the beginning of a new upside trend in U.S. production which would be bearish for the oil market.

Fortunately for oil bulls, the new Baker Hughes Rig Count report has indicated that U.S. producers are not ready to meaningfully increase production at current oil prices.

This is especially important at times when OPEC+ countries are increasing their production by two million barrels per day (bpd) as they gradually ease the previous production cuts.

For example, Russia has stated that its oil production was in line with the OPEC+ deal in July while it has reportedly increased its oil production in the first days of August.

In this situation, an increase of production from U.S. shale companies could serve as a material bearish catalyst. However, the recent data indicates that U.S. oil production is set to remain mostly flat in the near term, which is good for the oil market.

Positive Manufacturing PMI Reports Provide Support To Oil Prices

WTI oil’s recent attempt to settle below the key $40 level was not successful, and oil is back above $40.

Oil prices got material support from the release of Manufacturing PMI reports. In Euro Area, Manufacturing PMI increased from 47.4 in June to 51.8 in July. In the U.S., Manufacturing PMI grew from 49.8 to 50.9. Numbers above 50 show expansion.

Traders are betting that recent improvements in the manufacturing segment will boost oil demand and support oil prices.

However, it remains to be seen whether the growth in the manufacturing segment will be sufficient enough to offset worries about new restrictive measures which are implemented to stop the spread of coronavirus.

Most recently, Philippines imposed a new two-week lockdown in its capital Manila to slow down the spread of the disease.

In Europe, the travel sector recovery is once again postponed as countries introduce quarantine measures for travellers and require them to wear masks.

According to a recent Reuters report, most potential tourists from UK, France and Germany will skip a holiday if they need to get tested for COVID-19 and are required to wear face masks. This does not bode well for the recovery of jet fuel demand.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Fundamental Daily Forecast – Expectations of Higher Export Demand, Possible Heat Supportive

A shift in the short-term forecast over the weekend was all it took to revive the sluggish natural gas market on Monday. The news that heat was being put back into the forecast helped offset the generally bearish tone created by worries that Hurricane Isaias would bring in cooler temperatures throughout the Midwest and East Coast.

At 14:30 GMT, September natural gas is trading $2.008, up $0.209 or +11.62%.

NatGasWeather wrote Monday morning, “The weekend weather data was only slightly changed in most models except for the European model, which gained a hefty amount of demand. In fact, the European model was cooler than the rest of the data by nearly 10 CDD’s at Friday’s close, then trended notably hotter over the weekend to now nearly 10 CDD’s hotter than the rest of the data.”

“The natural gas markets are clearly hoping the hotter European model is correct with prices up more than 20 cents this morning. Although, prices were likely aided by LNG/feedgas/exports increasing to 4 Bcf over the weekend to tighten the balance. The European model has been running too hot in most instances this summer, so there risk if it loses some demand to line up better with the rest of the data.”

Additionally, Natural Gas Intelligence (NGI) reported that liquefied natural gas (LNG) feed gas demand jumped higher over the weekend, with Genscape Inc.’s estimate showing a 740 MMcf/d day/day increase on Saturday.

“Recently, a Bloomberg survey of traders found that up to 45 cargo cancellations are expected for the month of August, down from roughly 50 for the month prior,” Genscape analyst Preston Fussee-Durham said.

The largest increase in feed gas inventories occurred at Cheniere Energy Inc.’s Sabine Pass terminal, with volumes to the facility climbing nearly 580 MMcf/d, according to Genscape estimates.

“Effective for today’s gas day (based on timely cycle nominations), feed gas demand from interstate pipelines stands at 3.85 Bcf/d – 0.68 Bcf/d more than July’s average of 3.17 Bcf/d,” Fussee-Durham said.

Daily Forecast

Bullish traders are responding to the news without hesitation. They really had no choice, the weather guys put heat back into the forecast, and demand for feed gas was up. These are short-term bullish factors.

Although there is no significant resistance until $2.499, there is room to rally into a 50% to 61.8% resistance zone at $2.041 to $2.149. Sellers could return on a move into this area.

The return of hot weather and firmer demand for LNG may not have that much of an impact on nearby natural gas futures, but it means a lot to deferred traders who want to see storage supply fall head of the winter demand season.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 Bulls Pulled a Rabbit Out Of Their Hats

Just as I called for, the bulls are winning in the battle to break above the early June highs lastingly. And it’s not through technology, communications or the defensives – the other sectors keep more or less standing ground.

So, can I wave off the selling pressure right after the opening bell? In today’s analysis, I will look at this shot across the bow, and examine the extent to which the bulls should be concerned, or not.

I reaction to Q2 tech earnings indeed overpowered the dismal quarterly GDP figures and struggling job market. Right or wrong, the stock market takes a rear view mirror look at this historic GDP plunge, treating it as a mere mini-depression. It chooses to ignore the fact that more than 54 million Americans have filed new claims for unemployment benefits, and that a total of 118 million working age Americans aren’t working (the labor participation rate in June stood at 61.5% only).

With the new stimulus around the corner, it’s betting that the unprecedented plunge in personal consumption (concentrated in services, not goods) and likewise steep dive in consumer sentiment, would be over. Right now, such bets are still paying off.

S&P 500 in the Medium- and Short-Run

I’ll start today’s flagship Stock Trading Alert with the weekly chart perspective (charts courtesy of http://stockcharts.com ):

After preceding week’s hesitation, bullish price action revived the weekly chart again. On solid volume, prices closed above the early June highs. All by themselves, I don’t see the extended weekly indicators as a cause for concern – such rationale has to stem from the daily chart, so let’s check that one next.

Another breakout attempt above the early June highs is officially in, and its rising volume is encouraging. Or does the bearish candlestick bring more than its fair share of caution? Without a downside reversal in the nearest days, the candle merely tells a story of a successful reversal of Friday’s losses.

The credit markets still lean the bullish way.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) extended gains on Friday, having earlier repelled the bears. The lower volume isn’t an issue when examining the previous volume spike. Take a look at late June, and the relative volume differential in the session following the washout one. That’s why I see Friday’s decreasing volume vs. Thursday’s high one, as no cause for concern.

Both the leading credit market ratios (please see this and many more charts at my home site) – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – are broadly supporting each other. And that bodes well for the stock upswing to go on.

The ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) is in an uptrend again, and such return of the animal spirits in bonds is constructive for the stock market bulls.

The ratio of stocks to Treasuries ($SPX:$UST) paints a bit more cautious picture. Yet, its message is still of the stock bulls enjoying the benefit of the doubt.

The overlaid S&P 500 closing prices (black line) against the HYG:SHY ratio show that Friday’s close didn’t leave stocks in a dangerously extended position. Should the HYG:SHY tailwind last as I see it likely to, then stock prices have a floor nearby.

Smallcaps and Emerging Markets

The Russell 2000 (IWM ETF) is trading weak on a very short-term basis – it didn’t manage to even close unchanged while the S&P 500 moved up. Should they have performed better, that would point to a more broad-based advance within the S&P 500 – and indeed, the daily market breadth indicators in the 500-strong index have seen better days, politely put. But back to smallcaps.

Indeed, the IWM ETF is in a vulnerable position after having defended its 200-day moving average. Should its weakness take a more impactful turn, that would surely affect the S&P 500.

Emerging markets keep their healthy consolidation going, and are slowly again approaching their early July highs. This chart’s message certainly isn’t bearish for the S&P 500.

S&P 500 Sectors in Focus

Technology (XLK ETF) is all the rage again, making new 2020 highs. Pretty extended, but the much talked about correction, hasn’t come and isn’t really here. The key driver of Friday’s S&P 500 isn’t disappointing.

Crucially, semiconductors (XSD ETF) aren’t underperforming in any dramatic fashion. Dramatic – that’s an understatement, because one day’s weakness doesn’t cut that. Move on, no crack in the dam here.

Healthcare (XLV ETF) merely refused to decline profoundly on Friday, and isn’t really acting as a market leader over the past few session. Step aside though, and the chart is healthy, and I look for an upside surprise here quite soon. Perhaps some more vaccine news slash hype would help the lackluster financials (XLF ETF) performance too.

Summary

Summing up, Friday’s S&P 500 reversal is keeping the breakout attempt above the early June highs alive. Credit markets keep acting strong, and the rise in Treasuries just serves to power the TINA (there is no alternative) trade as it pushes investors farther out on the risk curve. Farther than they would be comfortable, but still helping the stock bull at the moment. One of the key watchouts is the daily market breadth, where both the advance-decline line and advance-decline volume remain in the bearish territory. Overall, the balance of risks remains skewed to the upside, though the bulls would benefit from a tight stop-loss locking recent gains.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Oil Price Fundamental Daily Forecast – Rangebound as Big Money Waits on Sidelines for Demand Clarity

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Monday, but posting a second-consecutive rangebound day as prices remain inside last Thursday’s unusually wide trading range. The price action suggests a couple of things, investor indecision or the transitioning from bullish to bearish as the market adjusts to COVID-19 related demand shifts that are likely to lead to a rise in global supply.

At 13:30 GMT, September WTI crude oil is trading $40.45, up $0.18 or +0.45%. December Brent crude oil is at $44.54, up $0.37 or +0.84%.

Other analysts agree that prices are being pressured by rising coronavirus cases around the globe and by oversupply worries as OPEC and its allies are set to wind back up output cuts in August, but supported by positive industry data in Europe and Asia.

Stronger PMI Data Out of China, Euro Zone

A private survey released Monday showed China’s manufacturing activity expanded in July. The Caixin/Markit manufacturing Purchasing Manger’s Index came in at 52.8 for July, above expectations for a reading of 51.3 by economists in a Reuters poll.

In the Euro Zone, manufacturing activity across the region expanded for the first time since early 2019 last month as demand rebounded after more easing of the restrictions imposed to quell the spread of the new coronavirus, a survey showed on Monday.

IHS Markit’s final Manufacturing Purchasing Managers’ Index bounced to 51.8 in July from June’s 47.4 – its first time above the 50 mark that separates growth from contraction since January 2019.

Russia is Raising Oil Output as OPEC+ Cuts Ease:  Reuters Source

Russian oil and gas condensate output increased to 9.8 million barrels per day (bpd) on August 1-2 from 9.37 million bpd in July as the country eases production curbs under an OPEC+ deal, a source familiar with data said on Monday. The Energy Ministry declined to comment on the data.

Russia has said it will increase its crude oil production by 400,000 bpd as part of that deal, which does not include output of gas condensate, a light oil.

Daily Forecast

WTI and Brent crude oil could remain rangebound until traders get more clarity about how the new surge in COVID-19 cases will affect demand. Traders are also likely to try to hold prices in a range until they see how the OPEC+ output cut tapering changes the supply dynamic.

With most money managers on the sidelines or investing in other momentum driven markets like the metals, crude oil speculators are getting a little nervous about attacking the long side of the market because of worries over the strength of the demand recovery. Bullish speculators are concerned that the surge in coronavirus cases in the U.S. and around the world could slow the recovery if more restrictions are put into place.

For a look at all of today’s economic events, check out our economic calendar.

Silver Price Daily Forecast – Silver Failed To Get Above Resistance At $24.95

Silver Video 03.08.20.

Silver Finds Itself Under Pressure As U.S. Dollar Continues To Rebound

Silver pulled back closer to $24.00 as the U.S. dollar gained ground against a broad basket of currencies while gold corrected from recent highs.

The U.S. Dollar Index continued its rebound, putting pressure on precious metals and other commodities. The U.S. Dollar Index has managed to settle above the resistance at 93.5 and is trying to get above the 94 level.

If the U.S. dollar continues its upside move, silver may experience more pressure since stronger dollar makes it more expensive for buyers who have other currencies. In case the U.S. Dollar Index will be able to get above the 94 level, it will likely head towards the significant resistance at the 20 EMA at 94.90.

Meanwhile, spot gold made an attempt to test the $2000 level but failed to gain more upside momentum and pulled back closer to $1970. At this point, gold is trying to consolidate just below the $2000 level which is a healthy sign for bulls.

However, a continued rebound of the U.S. dollar may put additional pressure on gold and cause a correction which will be also bearish for silver.

Gold/silver ratio is forming a range between 80 and 85 while volatility decreases. Gold/silver ratio did not manage to immediately rebound after the major downside move that happened in July, which is a bullish development for silver.

Technical Analysis

silver august 3 2020

Silver failed to settle above the nearest resistance level at $24.95 and pulled back. The nearest support level at $24.00 has also been tested during today’s trading session.

Volatility may decrease in the upcoming trading sessions, and silver may find itself in a new trading range between support at $24.00 and resistance at $24.95.

However, this scenario is not guaranteed since silver volatility may increase as a result of rapid moves on the U.S. dollar front or a gold price breakout.

In case silver settles below the support level at $24.00, it will head towards the next support at $23.25.

A move above the nearest resistance at $24.95 will open the way to the test of the next resistance level which is located at recent highs at $26.20.

For a look at all of today’s economic events, check out our economic calendar.

Price of Gold Fundamental Daily Forecast – Ripe for Correction During Dollar Short Squeeze

Gold futures are taking a breather on Monday from its tremendous rally to record highs in July. The catalyst behind the weakness is a stronger U.S Dollar that is weighing on foreign demand for the dollar-denominated precious metal. A sharp rise in 10-year U.S. Treasury yields is also weighing on gold prices after the benchmark hit a record low yield late last week.

At 13:03 GMT, December Comex gold futures are trading $1984.70, down $1.20 or -0.06%.

Dollar Jumps after Weakest Month in a Decade

The dollar is trading higher against a basket of major currencies on Monday as a squeezing-out of crowded short positions combined with safe-haven demand gave the U.S. currency some respite after its weakest monthly performance in ten years. The greenback lost more than 4% in July, its biggest monthly drop since September 2010.

Dollar Short-Squeeze

Speculators’ net shorts on the U.S. Dollar have soared to their highest since August 2011 at $24.27 billion, Reuters calculations and U.S. Commodity Futures Trading Commission (CFTC) data showed on Friday.

A partial squeezing out of that crowded short position may be the reason for the dollar’s rally and gold’s subsequent reversal to the downside earlier today.

Essentially, the dollar ran out of sellers. Traders could sense it because the downside movement was a bit cautious late last week. It seemed that nearly every short in the Forex market decided to cover at the same time on Friday, creating a tremendous reversal to the upside.

Treasury Yields Bounce Slightly from Last Week’s Record-Setting Drop

Probably exerting the most pressure on gold is a rise in U.S. Treasury yields after last week’s decline pushed some of the front-end rates to record lows.

Yields were pressed lower last week on the hopes of fresh fiscal stimulus from Congress, but members went home for the week-end without reaching deal. Policymakers are likely to have a deal in place this week, but it’s probably being priced into the market already.

Daily Forecast

We’re going to be keeping an eye on the U.S. Dollar, but an even closer watch of Treasury yields. Right now the dollar is going through the early phase of a short-covering rally that could lead to at least a 50% retracement of the recent sell-off. If this were to take place then gold could mirror the move with a 50% retracement of its current rally.

Traders shouldn’t fear a normal 50% to 61.8% correction in gold. In fact, they should embrace it because it would likely lead to a break back into a value area where it would become attractive to long-term investors.

The fundamentals are there for higher prices over the longer-term. However, over the short-run, I can build a case for a near-term correction.

For a look at all of today’s economic events, check out our economic calendar.

Bitcoin Shots to A New Yearly Highs in July

Indeed, the flagship cryptocurrency endured a prolonged stagnation period. It traded mostly within a narrow range defined by the $9,000 support and the $9,500 resistance level. But on July 22nd, the bears gave up and could no longer contain Bitcoin from achieving its upside potential. Thus, its price finally broke out of the consolidation phase, indicating that it was the beginning of a new bullish cycle.

As the buying pressure behind Bitcoin rose exponentially, so did its market value. BTC shot up over 20%, smashing through the infamous $10,000 resistance barrier. The high levels of demand were so significant on July 27th that it allowed the pioneer cryptocurrency to rise to a new yearly high of $11,488. This day was the most profitable 24 hours period of the month.

Investors appear to have taken advantage of the bullish price action to realize profits. The spike in selling pressure triggered a 7.9% correction on July 28th, which saw Bitcoin drop to a low of $10,580. As the month came to an end, sidelined investors seem to have re-entered the market, pushing prices back up. BTC was able to close July at $11,343.68, providing a monthly return of 22.86%.

Ethereum Enters Massive Bull Rally

Like Bitcoin, most of Ethereum’s price action took place in the last nine days of July. The smart contracts giant kicked off the month at $225.56 and immediately started making a series of higher highs and higher lows. This price behavior, accompanied by the boom in the DeFi sector and speculation over ETH 2.0, saw many investors grow optimistic about Ether.

Despite the positivism around this altcoin, the $245 resistance level was able to absorb any upward pressure impeding it from advancing further. On July 8th, for instance, Ethereum rose to this hurdle, but it was quickly rejected. The rejection was followed by a 7% correction pushing Ether down to $229.84.

It was not until July 22nd that Ethereum finally turned the $245 resistance wall into support. Moving past this major barrier was the catalyst that triggered FOMO (fear of missing out) among investors. As buy orders began to pile up, the second-largest cryptocurrency by market cap entered an impressive bull rally.

Ethereum skyrocketed by 42.46% to reach a new yearly high of $349.83 on July 31st. Only a few hours before the monthly close, Ether’s price dropped by 0.97%. As a result, ETH was able to end July at $346.42 and provide investors a monthly return of 53.58%.

Further Gains on the Horizon

The price action seen throughout July sent investors into “extreme greed.” Historical data reveals that when greed reigns the crypto market, exhaustion points are reached, followed by steep corrections. Although everything seems to indicate that Bitcoin and Ethereum have entered a new bull market, investors must be aware of the high probability of a retracement.

If this were to happen, market participants would likely take the opportunity to “buy the dip” and grow their long positions. A new influx of capital could propel these cryptocurrencies towards new yearly highs. As the crypto market currently stands, there are more reasons to be bullish than bearish, but it is imperative to use stop-loss orders to avoid adverse conditions.

Konstantin Anissimov, Executive Director at CEX.IO

Clorox Sales Up 22% in June Quarter Amid COVID-19 Panic-Buying; Target Price $256

Clorox, a $9 billion market cap consumer products company, reported that its sales surged 22% in the June quarter, including double-digit growth across all reportable segments as people spent more time cleaning and disinfecting their homes due to the COVID-19 pandemic, sending its shares up over 1% pre-market trading.

Clorox said it delivered earnings of $310 million, or $2.41 diluted EPS in the fourth quarter, which ended June 30, 2020, compared to $241 million, or $1.88 diluted EPS, the same quarter a year earlier, representing a 28% increase in diluted earnings per share. The company’s fourth-quarter gross margin increased 170 basis points to 46.8% from 45.1% in the year-ago quarter.

The board of directors of the Clorox Company also announced that, effective Sept. 14, 2020, Linda Rendle will be promoted to chief executive officer and elected to the company’s board of directors. Benno Dorer will continue serving as the board’s executive chair.

Clorox shares closed 2.27% higher at $236.51 on Friday, increased more than 50% since the beginning of 2020.

Clorox stock forecast

Nine analysts forecast the average price in 12 months at $202.89 with a high forecast of $256.00 and a low forecast of $164.00. The average price target represents a -14.22% decrease from the last price of $236.51. From those nine, three analysts rated ‘Buy’, four analysts rated ‘Hold’ and three rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $193 with a high of $259 under a bull scenario and $145 under the worst-case scenario. Deutsche Bank raised its target price to $223 from $174. Several other equity analysts have also updated their stock outlook. Clorox had its price target raised by investment analysts at JPMorgan Chase & Co. to $235 from $203. BofA Global Research raised price objective to $235 from $215.

We think it is good to buy at the current level with a target of $256 as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild buying opportunity.

Analyst comment

“Structural Long-term Topline Challenges Relative to HPC Peers: While CLX’s near-term topline is likely to be robustly supported by a COVID-related demand boost for cleaning products (we project +17.5% for 2H20e, driven by the 25% of CLX’s business related to cleaning), we believe that longer-term, Clorox remains over-indexed to low-growth product categories, with high exposure to the US,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“Valuation Too High: We view CLX valuation of 20.5x CY21e EV/EBITDA and 30x CY21e P/E as too high (in comparison to PG at 23x CY21e P/E) considering limited LT EPS growth and strategic potential relative to peers post a beneficial COVID impact,” he added.

Upside and Downside Risks

Topline and margin upside from improved pricing, longer-lasting COVID-related demand impact, better than expected volume, declining commodity costs, successful innovation driving recaptured shelf space, consolidation potential, and cost-cutting, Morgan Stanley highlighted as upside risks to Clorox.

Pricing doesn’t take hold, worsening volumes, higher than expected commodity inflation, heightened competition from private label, Morgan Stanley highlighted as downside risks.

Daily Gold News: Monday, August 3 – Gold’s Consolidation – a Topping Pattern?

The gold futures contract reached another new record high on Friday at the price level of $2,005.40. The market has slightly extended its recent advance again. The market gained 0.97%, but the closing price was at around $20 below the daily high. Gold reached the highest in history following U.S. dollar sell-off, among other factors.

Gold is 0.4% lower this morning as it is slightly retracing Friday’s advance. What about the other precious metals? Silver gained 3.66% on Friday and today it is 1.3% lower. Platinum gained 0.69% and today it is 0.3% higher. Palladium gained 0.49% on Friday and today it’s 1.2% higher. So precious metals trade within a short-term downward correction this morning. The gold price remains within a week-long consolidation along $1,950-2,000.

Friday’s Personal Income/ Personal Spending data release along with the sentiment numbers have been mixed. Today we will get the ISM Manufacturing PMI number at 10:00, among others. Expectations are at 53.6 – one point above the previous month’s release. The ISM Manufacturing PMI got back above the neutral level of 50 following steep declines in May and June.

Below you will find our Gold, Silver, and Mining Stocks economic news schedule for the next two trading days:

Monday, August 3

  • 9:45 a.m. U.S. – Final Manufacturing PMI
  • 10:00 a.m. U.S. – ISM Manufacturing PMI, Construction Spending m/m, ISM Manufacturing Prices
  • All Day, Canada – Bank Holiday

Tuesday, August 4

  • 00:30 a.m. Australia – Cash Rate, RBA Rate Statement
  • 10:00 a.m. U.S. – Factory Orders m/m, IBD/TIPP Economic Optimism
  • 9:45 p.m. China – Caixin Services PMI

Thank you for reading today’s free analysis. We hope you enjoyed it. If so, we would like to invite you to sign up for our free gold newsletter. Once you sign up, you’ll also get 7-day no-obligation trial of all our premium gold services, including our Gold & Silver Trading Alerts. Sign up today!

For a look at all of today’s economic events, check out our economic calendar.

Paul Rejczak
Stock Selection Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

GBP/USD Eases Back After a Strong Performance in July

The British pound was the best performer among the seven major currencies in July, gaining 5.5% against the greenback.

The dollar was under pressure throughout the month, weighed by optimism that central banks and governments would continue to support the global economy. The greenback is known as a safe-haven currency and often underperforms when the market’s appetite for risk is higher than usual.

In the UK, the economy took a firm step in a positive direction as lockdown restrictions were eased in July and businesses started to reopen.

The latest PMI report, released earlier today, showed the manufacturing sector growing for a second consecutive month. Data on Friday revealed a strong rebound in the services sector and a sharp push higher in UK house prices.

On the other hand, ongoing talks in reaching a trade deal with Europe have not been going so well. Last month, several media outlets reported that the UK government expects an agreement won’t be reached by the deadline. Further, the UK waived its right in June to extend the transition and negotiating period beyond December.

Later in the North American session, the US will release its latest PMI figures for the manufacturing sector.

Technical Analysis

GBPUSD Monthly Chart

GBP/USD trades about half a percent lower ahead of the North American open on Monday. The pair reached a high of 1.3170 last week, stopping short of testing major resistance at 1.3262 seen on a monthly chart.

Considering the recent upward momentum, buyers are likely to support the pair on near-term dips. But at the same time, the risk to reward does not appear all that favorable for buyers with a longer-term view since resistance at 1.3262 has held the pair lower for more than two years.

Friday’s daily candle suggests some exhaustion that could cap near-term rallies. Today’s daily close will be important. A close near Thursday’s open, around 1.3000 would result in the formation of a reversal candlestick pattern on a daily chart.

Bottom Line

  • GBP/USD has pushed slightly lower after an impressive gain in July.
  • The decline on Friday ended a 10 consecutive day bullish streak.
  • The pair is weighed by a dollar recovery as the greenback is seen advancing against its major counterparts after hitting a two-year low on Friday.

For a look at all of today’s economic events, check out our economic calendar.

EUR/USD Daily Forecast – Dollar Rebound Holds Euro Below 1.1800

EUR/USD briefly traded above 1.1900 on Friday but has since eased back as the dollar is rebounding broadly against its major currency counterparts.

Considering that the exchange rate has risen at a much more rapid pace than the norm, it would not be unusual to see a consolidation at this point, or a slight correction lower.

Economic data from Europe was positive today. The latest manufacturing PMI report showed the industry returning to growth after a steep contraction in the second quarter.

The report confirms that the euro area is well on its way to a recovery as the easing of lockdown restrictions has boosted the economy compared to prior months. However, things are still in the early stages and this momentum will need to continue for the economy to eventually get back to the state it was before the virus shock.

The labor market is the biggest risk when it comes to factors that could derail the recovery. For this reason, the next employment report, scheduled for release next week, will be closely watched.

Later today, the US will release data that will provide an outlook on the US manufacturing sector. Similar to the euro area, analysts expect the manufacturing sector to show growth in July.

Technical Analysis

EURUSD 4-Hour Chart

The currency pair shows signs of slowing but there is risk in taking a counter-trend stance, especially in the case of EUR/USD where the recent upward trend has had a lot of momentum behind it.

It might take a further development in price action to determine if the dollar bounce will turn in anything meaningful.

For the session ahead, the 1.1735 level appears to be significant. The price point stems from a weekly chart where it has acted as both support and resistance in the past.

A sustained move below it could clear the path for a broader correction. Considering the trend, buyers may look to defend the level. It may take a move above 1.1850 for the upward momentum to return.

Bottom Line

  • Economic data from the euro area was positive although the exchange struggled to gain following the report.
  • The level to watch in the session ahead is 1.1735. It can act as a line in the sand for a directional bias for today’s session.
  • The US will release it’s latest manufacturing PMI data in early North American trading.

For a look at all of today’s economic events, check out our economic calendar.

GBP/USD Daily Forecast – U.S. Dollar Tries To Gain More Ground

GBP/USD Video 03.08.20.

U.S. Democrats And Republicans Fail To Reach Coronavirus Aid Package Deal

GBP/USD trades near 1.3100 as the U.S. dollar is mostly flat against a broad basket of currencies amid continued negotiations about the new U.S. coronavirus aid package.

The U.S. Dollar Index has stabilized near 93.5 after rebounding from recent lows at 92.5. Meanwhile, Republicans and Democrats continued their negotiations during the weekend but failed to reach a deal.

According to White House Chief of Staff Mark Meadows, Republicans wanted to extend some federal unemployment benefits while continuing negotiations on the whole package but Democrats wanted a comprehensive deal.

He also added that he was not optimistic that negotiations would successfully conclude in the near term.

Failure to extend special unemployment benefits poses risks for consumer activity which is the main driver of the U.S. economy. On the other hand, excessive money-printing could put additional pressure on the U.S. dollar and its status as the world’s main reserve currency.

Today, traders will have to digest UK Manufacturing PMI and U.S. Manufacturing PMI reports for July.

UK Manufacturing PMI is projected to increase from 50.1 in June to 53.6 in July.

In the U.S., Manufacturing PMI is expected to grow from 49.8 to 51.3. Numbers above 50 show expansion.

Manufacturing was not hit as hard as services during the current crisis so there’s a good chance that today’s data will be optimistic and provide some additional support to riskier assets.

Technical Analysis

gbp usd august 3 2020

GBP/USD tries to stabilize near 1.3100 following the major upside move.

In case GBP/USD manages to settle above 1.3100, it will have a good chance to test the nearest resistance level at 1.3200.

On the support side, the nearest support level is located at 1.3070. GBP/USD has already made an attempt to settle below this level but this attempt was unsuccessful.

If GBP/USD settles below 1.3070, it will head towards the next support level at 1.3020.

Currently, GBP/USD continues to move in a rather tight upside channel, and the upside trend remains intact.

However, RSI is still in the overbought territory, suggesting that risks of correction remain elevated.

For a look at all of today’s economic events, check out our economic calendar.

Marathon Petroleum to Sell Speedway for $21 billion to 7-Eleven; Target Price $48

Marathon Petroleum, an American petroleum refining, marketing, and transportation company, announced that it has entered into an agreement with 7-Eleven, a wholly-owned indirect subsidiary of Seven & i Holdings, to sell its Speedway gas stations in the United States for $21 billion in cash.

The $21 billion valuation represents a significant value unlock. The 100% cash transaction immediately captures value for MPC shareholders relative to potential valuation risks of other alternatives, the company said.

“We estimate a 17% equity valuation uplift from the transaction with proceeds evenly going to buybacks and debt, though that allocation will not be decided until deal close. Rating and price target under review,” said Jason Gabelman, equity analyst at Cowen.

“We expect MPC to target net debt at <1x mid-cycle EBITDA post-sale. We estimate $2.2 billion mid-cycle refining EBITDA plus $2.2 billion distributions from the MLP. This could mean $7.5 billion of sale proceeds go to debt paydown with the remainder to share buybacks, though one could argue the stable distributions from the MLP mean a higher debt multiple. The equity value change until deal close will impact how many shares will ultimately be repurchased and could be a driver of value creation from this sale.”

The deal is expected to result in after-tax cash proceeds of approximately $16.5 billion. Marathon Petroleum expects to use the proceeds to both repay debt to protect its investment-grade credit profile and return capital to shareholders.

The deal is anticipated to close in the first quarter of next year, subject to customary closing conditions and regulatory approvals. 7-Eleven said the agreement will help bring the total number of stores in the world’s biggest economy and Canada to nearly 14,000.

“We think this is a positive outcome for Marathon Petroleum, with the company receiving a price that’s above expectations (which we peg at ~$17-18 billion pre-tax), crystallizing Speedway value immediately, and bringing in more cash for greater financial flexibility (vs. a spin),” said Benny Wong, equity analyst at Morgan Stanley.

Following this deal, Seven & i shares fell more than 8% to JPY 2937.5 on Monday, the biggest one-day drop since March. Marathon Petroleum shares rose 0.5% to $38.38 in after-hours trading.

Executive comment

“This transaction marks a milestone on the strategic priorities we outlined earlier this year,” Michael J. Hennigan, president and chief executive officer said a press release.

“Our announcement crystalizes the significant value of the Speedway business, creates certainty around value realization and delivers on our commitment to unlock the value of our assets.  At the same time, the establishment of a long-term strategic relationship with 7-Eleven creates opportunities to improve our commercial performance.”

Marathon Petroleum stock forecast

Eleven analysts forecast the average price in 12 months at $47.09 with a high forecast of $61.00 and a low forecast of $38.00. The average price target represents a 23.27% increase from the last price of $38.20. From those 11, nine analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Marathon Petroleum had its price target trimmed by Scotiabank to $48 from $51 The firm currently has a sector outperform rating on the oil and gas company’s stock. Mizuho lowered its price target to $52 from $54. Jefferies cuts target price to $48 from $50.

Several other equity analysts have also updated their stock outlook. Jefferies Financial Group increased their target price on shares of Marathon Petroleum to $48.00 from $50.00. Morgan Stanley target price is $48 with a high of $60 under a bull scenario and $28 under the worst-case scenario. We think it is good to hold for now as 100-day Moving Average signals a mild selling opportunity.

Analyst comment

“Marathon Petroleum offers multiple ways to win. We expect MPC to benefit from the overall decline in crude prices, although we caution refined product demand risk could weigh on valuation. That said, the stock offers idiosyncratic upside as the company is undergoing a strategic review to unlock discounted value, which includes spinning out Speedway,” Morgan Stanley’s Wong said.

“We see a SoTP upside to ~$50/shr. Our SoTP is as follows: we assign $24/shr to retail, $21/shr to midstream, and $24/shr to refining. Adjusted for assets/liabilities, net debt, and synergies, our SoTP suggests a ~$51/shr valuation (>47% upside),” he added.

Upside and Downside Risks

Oil prices stay depressed or decline further; Successful spin-off of Speedway retail fuel business; Potential separation of MPLX and conversion to a C-Corp; Material widening of sweet-sour differentials, Morgan Stanley highlighted as upside risks to Marathon Petroleum.

Demand risk and Sweet-sour differentials narrow materially are two major downside risks.

Starbucks Could Test March Low

Starbucks Corp. (SBUX) rallied 3.7% on Wednesday after beating fiscal Q3 2020 consensus estimates but still lost $0.46 per-share on $4.22 billion in revenue, a staggering 38.1% decline compared to the same quarter in 2019. The company reported weakness all across the world, with revenue at the Global and Americas divisions dropping around 40%. Higher individual sales eased the bearish results but it wasn’t enough to lift earnings into the green.

Starbucks Vulnerable To Second Wave

The coffee giant now expects a fiscal year revenue decline of 10% to 15%, which forecasts a major sales uptick between now and year’s end. The positive guidance seems unrealistic, given the current path of the COVID-19 pandemic and likelihood of a second wave in the Northern Hemisphere this winter. Valuation could take a major hit in 2021 if sales continue to fall, sending the stock price to much lower levels.

Telsey Advisory Group analyst Bob Derrington recently lowered his target and discussed the long-term outlook, noting management was attempting to “restore and build confidence” by accelerating roll-outs of mobile order pay systems. He also outlined realignment initiatives for the new environment, indicating the retailer will “optimize its global store portfolio, including accelerated development of its smaller, more efficient pick-up stores and suburban drive-thru locations, and the closure of up to 400 urban cafes in the U.S. and 200 in Canada.”

Wall Street And Technical Outlook

Wall Street currently rates Starbucks as a ‘Moderate Buy’, based upon 10 ‘Buy’ and 14 ‘Hold’ recommendations. No analysts are recommending that shareholders sell their positions at this time. Price targets currently range from a low of $73 to a street-high $95 while the stock closed Friday’s U.S. session about $7 below the median $83 target. This placement suggests that higher sales will be needed to generate upside but that doesn’t seem likely in the third quarter.

Starbucks posted an all-time high near 100 in August 2019 and completed a double top breakdown in February 2020, establishing strong resistance in the low-80s. The stock sold off to a 19-month low in March and reversed at new resistance in June, easing into a holding pattern below that critical level. While a breakout will improve the technical outlook, the stock is trading perilously close to support at 71, with a breakdown raising odds for a decline into the March low.

 

 

 

Positives to Outweigh Negatives, Constructive on Stocks and Other Risk Assets: Fidelity’s Timmer

The direction in which the stock market may head is not as clear as it was at the end of March as some things are working in favour of stocks going up and also against them; however, the positives continue to outweigh the negatives, said Fidelity’s Global Asset Allocation Division director of global macro, Jurrien Timmer, who remains constructive on stocks and other risk assets in general.

So far, the deadly virus has infected more than 18 million people in over 210 countries and killed nearly 700 thousand, wherein the United States is the worst hit. Despite that, stocks continue to act as if we have already beaten the COVID-19, the infectious disease caused by the most recently discovered coronavirus.

The S&P 500 index has gained 50% since hitting a three-year low on March 23 of 2191.86, largely spurred by the Federal Reserve’s massive stimulus and COVID-19 vaccine optimism. However, the year is already halfway through and now it rests with the stock market to prove that it was right about a sharp V-shaped rebound in economic growth.

Since nearly all the country’s economic activity has been suspended since late March amid rising concerns about the spread of the coronavirus disease, federal governments and central banks around the world has spent trillions of dollars trying to help restart the economy and provide some relief to the financial markets.

That stimulus has given the initial impetus to stock as liquidity increased in the debt markets and volatility subdued in several markets. However, the long-term impact of these massive stimuli on the economy and the financial markets is unknown. The S&P 500 ended 1% higher at 3271.12 on Friday, just 122.4 points below its all-time high of 3,393.52 registered on February 19.

The COVID-19 related collapse in earnings will be reversed slowly as the economy re-opens and the recovery matures into expansion in 2021, causing a full recovery in the market to the February highs by the end of this year. The S&P 500 stock index to hit 3,400 By the end of this year and 3,600 next year; earnings to also rebound in 2021, according to Mizuho Securities.

Empirically, big price gains, combined with a large retracement after a fall amid strength in market broadness – a trend that can be seen in the S&P 500 today, has always led to a start of a bull market.

“If there ever was a pivotal moment for making a call on which direction the next 10% or 25% move will be for the S&P 500, now is it, I believe. A few months ago, it seemed to me, it was a relatively simple call, at least based on the study of market history. The stock market typically rallies after the type of historic selling climax experienced in late March, and this time has not been any different so far. But after a 46% rally (which never produced a retest) I think it’s much more of a toss-up now,” said Fidelity’s Global Asset Allocation Division director of global macro, Jurrien Timmer.

On the positives, Fidelity’s Timmer said:

“On the plus side, the economy has bottomed and is recovering, with earnings growth following along. Earnings season is looking good so far, with 85% of companies beating estimates by an average of 15 percentage points. It’s still early days for earnings season with 181 companies reporting, and the differences between estimates and reported earnings are unusually large given how little guidance there has been on the earnings front. The policy response has been another plus, of course. The Fed is keeping its foot on the monetary gas pedal, and more fiscal relief may be on the way as well, as transfer payments threaten to dry up. The promise that the Fed and Treasury (and their global counterparts) can build a bridge across the COVID-19 abyss and on to the other side of this pandemic has been an important factor behind the market’s powerful rally,” Fidelity’s Timmer said.

“The tape (momentum and breadth) has been another plus for the US market. The sentiment picture is another positive. Finally, on the plus side, there appear to be a number of potential positive developments underway in terms of COVID-19 treatments and vaccines. This prospect, along with the Fed, have put a floor under the market, including the more economically sensitive ‘reopen’ sectors,” he added.

On the negatives, Fidelity’s Timmer said

“COVID-19 continues to burn its way through sections of the U.S. and the world, and this is causing some states to delay or reverse their reopening plans. As a result, some of the high-frequency economic indicators are suggesting that the economy is starting to stall out following the initially strong V-shaped recovery. The longer the recovery gets dragged out, the greater the risk that this V could turn into a U or L, and that the liquidity crisis that the Fed was able to mitigate will turn into a solvency crisis not unlike 2008,” Fidelity’s Timmer said.

“The risk is not that the economy will not recover, just that it won’t recover back to its full potential. If the economy recovers, but only to say 70% of what it was pre-COVID, then it will be a long slog back to normal. Right now, the stock market seems to be priced for something quicker. On top of this we have a pivotal election in a few months, bringing with it various potential policy outcomes, which could eventually affect corporate taxes and U.S.-China relations,” he added.

“A well-diversified portfolio of both growth stocks and deep value stocks (especially emerging market and non-US developed), gold and Treasury Inflation-Protected Securities (TIPS), and long-duration bonds. A portfolio similar to this, in my view, is pretty close to an all-weather portfolio,” he concluded.