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The U.S. stock market (Dow Jones Industrial Average) closed around 26428.32 Friday, surged almost +0.44% (+115 points) on Apple boost and hopes of an imminent corona stimulus 4.0 as Capitol Hill may cancel the Aug recess to negotiate the final shape of relief package between Democrats and Republicans.
Earlier Friday, Dow slips almost -300 points as Dr. Fauci was cautiously optimistic about the COVID-19 vaccine. Dow was also affected by mixed earnings (solid report card from Apple, Amazon, Alphabet, and Facebook, while Caterpillar posted a terrible loss). Dow was also under stress on the resurgence of coronavirus cases in various U.S. states like Florida.
In brief, Dow was under pressure on corona as-well-as U.S. political/policy uncertainty (usual drama) as the pandemic unemployment assistance (PUA) was set to expire on Friday (31st July). While the Democrats are insisting on the continuation of the previous weekly payment of $600/week (additional of regular unemployment benefit) to support ‘hard-working’ Americans to stay afloat amid the COVID-19 carnage, the Republicans (White House) wants it capped at 70% of the furloughed salary or max $400/week.
Earlier Trump wants it to reduce $200/week to ‘force’ American ‘hard workers’ to return to the job. The U.S. Treasury Secretary Mnuchin said the government can’t pay further so generously ($600/week) to ‘hard-working’ Americans to stay at home. Clearly, both Democrats and Republicans are playing politics with ‘patriotic hard-working’ Americans, a significant vote bank, ahead of the Nov election with this PUA.
Trump admin wants faster/forced full reopening of the U.S. economy even amid unabated coronavirus infections with risks of lives, while Pelosi & Co (Republicans) wants the U.S. economy to be under the current state of localized mini lockdowns till at least Nov’20, hampering U.S. economic recovery and Trump’s prospect for re-election.
On early Friday, Dow was also under stress on soft U.S. consumer sentiment/confidence, negative for discretionary spending. The UM consumer sentiment was revised lower to 72.5 in July 2020, compared to a preliminary estimate of 73.2 and remaining well below pre-pandemic levels of 96.5 due to the continued resurgence of the coronavirus. The record rises in COVID-19 infections forced many states to scale back or pause the reopening of their economies. In July, the U.S. consumer sentiment slumped –26.3% on a yearly basis (y/y) and -7.2% sequentially (m/m).
The University of Michigan (UM) said the Q3 GDP growth may revive from the Q2 record plunge, but consumers are less confident and any cut/discontinuation of the PUA may result in more fragile economic recovery:
Consumer sentiment sank further in late July due to the continued resurgence of the coronavirus. In the last four months, the Sentiment Index has remained trendless, averaging 73.7, a decline of 25% from the same period in 2019. The Expectations Index fell back to 65.9 in July, tied with the six-year low recorded in May, providing no indication that consumers expect the recession to end anytime soon.
While the 3rd quarter GDP is likely to improve over the record-setting 2nd quarter plunge, it is unlikely that consumers will conclude that the recession is anywhere near over. The federal relief programs have prevented more substantial declines in consumer finances, partially shielding consumers from the unprecedented surge in job losses, reduced work hours, and salary cuts. The federal relief programs have prevented more substantial declines in consumer finances, partially shielding consumers from the unprecedented surge in job losses, reduced work hours, and salary cuts. The lapse of the special jobless benefits will directly hurt the most vulnerable and spread even further by missed rent, mortgage, and other debt payments. Easing off the added jobless benefit will naturally result in job growth as well as provide for a delayed and gradual reduction in added benefits so that its eventual absence is much less disruptive. Easing off the added jobless benefit will naturally result in job growth as well as provide for a delayed and gradual reduction in added benefits so that its eventual absence is much less disruptive.
Now talking about COVID-19, the overall data was better comparatively in the last few days:
For the last few days, the daily number of COVID-19 infections was reported less than the 7-DMA and on Sunday, also dropped below the 50K mark after early July and the number of daily deaths also moved below 7-DMA as-well-as below 500. And the overall recovery rate was also inching towards 50%.
But for a clear visible flattening of the still parabolic U.S. coronavirus curve, the recovery rate needs to improve at least above 80%. Thus, with 7-DMA daily infections rate around 63000 and deaths around 1100, the U.S. may be still far away from any clear flattening of the COVID-19 curve and if this geometrical progress continues, the U.S. may report another 3M and 100K corona deaths in July, totaling around 8M cases and 260K deaths.
The U.S. coronavirus containment fight is getting complicated day-by-day amid growing public acrimony between various policymakers. Trump is still behind 10% of Biden in various opinion polls, mainly on COVID-19 issues. Although, Trump is now trying his best to develop the COVID-19 vaccine before the Nov election, at least on ‘emergency usage’, it may not be possible before Dec’20 for mass-vaccination. The COVID-19 vaccine is now the prime factor for public confidence, economic recovery, and Trump’s re-election.
But Trump will ensure 24/7 jawboning about COVID-19 vaccine development (like China phase-1 trade deal late 2019) and along with that, the U.S. ‘Helicopter Money’ (both monetary and fiscal stimulus) will prevent Dow from any deep correction ahead of the Nov election.
Technically, whatever may be the narrative, SPX-500 now has to sustain over 3285 for a further rally to 3310/3325-3355*/3385 and 3405*/3435-3485/3550 in the near term (under bullish case scenario).
On the flip side, sustaining below 3275, SPX-500 may fall to 3230*/3200-3175/3130 and 3100*/3060-3030*/3000 in the near term (under bear case scenario).
Technically, whatever may be the narrative, DJ-30 now has to sustain over 27150 for a further rally to 27350/27650*-27850/28100* and 28350/28500*-28975/29355 in the near term (under bullish case scenario).
On the flip side, sustaining below 27100, DJ-30 may fall to 26450/26250*-26000/25800* and 25500/25300-25000*/24600 in the near term (under bear case scenario).
Technically, whatever may be the narrative, NQ-100 now has to sustain above 11150 for a further rally to 11200*/11255-11375/11475 and 11630*/11705-11775/11830 in the near term (under bullish case scenario).
On the flip side, sustaining below 11125-11050*, NQ-100 may fall to 10800*/10675-10550/10350* and 10290/10000*-9750/9625 in the near term (under bear case scenario).
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