Belpointe Chief Market Strategist David Nelson and Wealth Enhancement Group Senior Vice President Nicole Webb on investing in coronavirus markets.
US equities futures fluctuated on Tuesday, with investors awaiting further developments on the stimulus package and US-China trading ratios amid thin trading volumes.
Futures tied to the S&P 500 oscillated between muted gains and losses, a day after the benchmark just shrugged off a record. Abroad, the Stoxx Europe 600 grew 0.1%.
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“This is a typical August, where things are very, very slow,” said Seema Shah, chief strategist, Principal Global Investors.
Earnings results for Home Depot and Walmart, scheduled to be released after 6 p.m. ET, are likely to attract attention as the U.S. business earnings season declines. Home Depot has particularly benefited from an increase in home remodeling among Americans during the coronavirus lockon.
Investors will also gain fresh insight into the health of the U.S. housing market at 8:30 a.m. ET, when the Department of Commerce figures will release on housing startup for July. Economists estimate that the measure of new construction in July increased 3.7% from the previous month. That would follow a rise for house building in June, when start-up jumped 17.3% over the month.
Concerns about the prospects for a new congressional spending bill weigh on markets, with negotiations reaching what appears to be an equilibrium. Prime Minister Mitch McConnell’s remarks that ongoing discussions may not necessarily lead to a deal, combined with media reports that Republicans are daring to further reduce the proposed stimulus amount, dampen some optimism, Deutsche Bank said. analysts in a note.
Investors also remain envious that the rift between Washington and Beijing could deepen after the U.S. Department of Commerce issued new rules Monday restricting Huawei Technologies’ access to foreign chips. The move extended the Trump administration’s restrictions on the Chinese telecom industry’s link to key components. The new rules prohibit non-US companies from selling all chips made with US technology to Huawei without a special license.
“The one thing that wins over people’s heads is the trade tensions of the US and China,” Ms Shah said. “Investors knew that tensions would rise in the run – up to the election, but not that there would be any concrete action,” she said.
The fresh restrictions have “potentially major implications” for technology companies, Ms. Shah said. That could have broader market implications, as technology stocks have driven the market rally in the US and in Asia.
The recovery in the large months of the stock market in recent months has been reflected in improved credit conditions, both driven by steps taken by central banks to reduce lending conditions. However, investors and analysts remain aware of how persistent the meetings will prove to be against an uncertain economic background and tensions between Washington and Beijing.
“It is extraordinary when you consider that second-quarter 2020 was the deepest quarterly contraction we have seen” in the US and European economies, said Tomas Hirst, European credit strategist at CreditSights. The rate of economic recovery is likely to slow later in the year, he said. “As we come into September, it may make sense to reduce risk so you do not run for the doors when sentiment changes in the fourth quarter.”
In bonds, yields on the benchmark 10-year US Treasury extended its decline to 0.667%, from 0.668% on Monday, suggesting that investors may lose some of their risk appetite.
In Asia, the most important benchmarks for equities ended Tuesday on a muted note. The Shanghai Composite Index rose 0.4% to reach its highest level since February 2018. This was based on Monday’s gains, driven by China’s central bank which injected fresh funds into the financial system.
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Daniel So, a strategist at China Merchants Bank International, said the central bank’s action showed that China would not tighten monetary policy. But he said it also probably could not go much further.
“Instead of rolling out massive monetary easing, I would expect China to launch more targeted fiscal measures to stimulate domestic consumption and encourage spending on infrastructure,” he said. So.
Chinese stocks hit multi-year highs last month, on optimism about economic recovery and signs of official support for a rallying market, before returning some gains. Mr So said, however, that China’s growth prospects are uncertain, amid a global downturn and tensions with the US
South Korea’s Kospi Composite fell 2.5% on growing concerns about an increase in local coronavirus infections.
—Joanne Chiu contributed to this article.
Write to Anna Isaac at [email protected]
