Stock Week Ahead: Wall Street Prepares for Another Rocky Neighborhood

Thats for good reason. Although there are still a few days left, the S&P 500 could hit its best quarterly performance in 50 years, Bank of America noted in a note to customers.

But there are signs that Wall Street is hedging its bets towards the third quarter, looking for opportunities more closely without assuming that everything will continue to rise.

See here: Nearly two in three asset managers think that the long-term impacts of Covid-19 have not been sufficiently taken into account in the stock markets, according to a recent survey by Institutional Investor.

Defensive positioning is on the rise. For the week ending Wednesday, investors, who are still sitting on a huge pile of cash, injected $ 2.9 billion in gold and pulled $ 7.2 billion out of stock, according to Bank of America. The flow of money to riskier bond funds stabilized.

Additionally, the Cboe Skew Index, which tracks demand for options that would pay if the S&P 500 experienced a sharp and unexpected drop, has started to climb.

“We see no signs of complacency in the derivatives market,” Kevin Russell, chief investment officer at the UBS hedge fund, said Friday.

Overall, Wall Street appears to be taking a more cautious stance, driven more by a desire to seek deals than by the frantic “win-win” strategy that defined spring.

The CNN Fear & Greed index, which tracks the mood of the market, remains in “neutral” territory.

Russell said he has a feeling the market is “conservative” and “anxious about the prospects.” But that does not mean that all risks are fully priced.

That’s especially true when it comes to growing coronavirus infections that could trigger a new round of stops. The S&P 500 fell 2.4% on Friday after Texas imposed new restrictions on bars and restaurants amid a surge in cases.

Remember: JPMorgan acknowledged in a note to customers dated June 19 that it is not “properly protected” against a second wave of infections that triggers the crash.

“We believe there is sufficient hospital capacity to accommodate the inevitable increase in infections as mobility increases,” the bank said.

Work situation is improving, but still cloudy

The main event before the July 4 holiday is the United States Employment Report for June. Wall Street expects another strong sample, but after the May data shocked forecasters, faith in analyst estimates is running out.

Economists surveyed by Refinitiv expect to know that the US economy added 3 million jobs in June, bringing the unemployment rate down to 12.3%. That would be a positive sign that the United States economy continues to rebound as suspended employees return to work.

However, there are a few caveats. Investors really don’t know what to expect after the US government said jobs rose 2.5 million in May, when a decrease of 7.5 million was expected.

Economists have begun to rely more on non-traditional data, such as restaurant reservations registered through OpenTable, but it is difficult to extrapolate too much of that information.

And even if the US economy added 5 million jobs in June, as Capital Economics expects, it would be too early to celebrate. Employment would still be below 10% below February levels, economist Micheal Pearce said in a recent note to clients.

Investors are desperate to get good economic data as infections increase in many parts of the country, although the June report won’t reveal much about how the job market could be affected by the current surge in cases.

On Friday, the Office of Economic Analysis reported that consumer spending rebounded in May, but Americans’ incomes fell sharply as government payments declined. That is bad for the long-term consumer-driven US economy.

Additionally, the University of Michigan reported that consumer sentiment fell in the second half of June, in tune with a resurgence in Covid-19 cases in parts of the country.

Until next time

Monday: pending home sales in the United States; Business confidence in Europe

Tuesday: US consumer confidence; China manufacturing data; Unemployment in Japan; FedEx (FDX) Profits
Wednesday: ADP Private Employment Report; Unemployment from Germany; ISM Manufacturing Index; General mills (S.I.G) Profits

Thursday: US jobs report; Unemployment in Spain and Italy; Weekly Unemployment Claims in the United States

Friday: US markets closed