Equity Markets fall on dragging stimulus talks

٢٦ أكتوبر ٢٠٢٠

Stimulus, or lack of, has been the talk of the markets recently. The main indexes are showing its most substantial decline since the start of September. Dow Jones, the worst performer of the US session, is down around 3.2%. At the same time, the S&P 500 and NASDAQ are down around 3%, respectively.

With the last full week away from the election, alongside stimulus talks dragging along, uncertainty in the markets are at an all-time high. This is not taking into account the Coronavirus state in the United States, recording over 85,000 new cases yesterday. If the Coronavirus were stock (ticker symbol, USCVD), the stock would be up 85% year to date.

Pandemic continues to rock markets
Chief Global Strategist at JPMorgan Asset Management David Kelly stated that “Nothing is to be gained by pretending that the pandemic and the economic pain it has caused are coming to a swift end.” This conveys the overall Wall Street consensus – the effects of the Coronavirus will continue to haunt the United States for the foreseeable future, and markets can only push further on better than expected results or stimulus.

Stimulus talks dragging the markets down
However, Stimulus talks have dragged on for months with no consensus on when the deal will close. Democrats and Republicans struggle to meet in the middle, with Democrats wanting a $2 trillion package, with Republicans wanting a stimulus package around the $1.6 Trillion marks. The Republicans have been making concessions – however, Democrats have been quite stern in their position. A GOP aide stated that “I don’t see how this gets voted on before the election.”

The Democrats have the ball slightly in their favor. President Trump really wants the deal to go through, making Republicans more likely to settle on a stimulus deal in the Democrats’ favor. Republicans are also wary of red states struggling due to the Coronavirus, which gives them less of an incentive to take a harsh stance on stimulus. Furthermore, a deal before the election would provide Pelosi the chance to state on the record that the deal was something the President wanted.

Markets may be technically set for a rebound on positive stimulus
The S&P 500 took a deep dive today, with the index recently breaking its 50% Fibonacci retracement on the said move, hunting for a possible retest of the 38.2% retracement. Any positive news on stimulus talks and Coronavirus cases may see a possible retest of the 38.2% retracement level, around the 3,356 level. This would also complete a head and shoulders formation.

Surprisingly, Gold is not doing much either
Interestingly enough, taking a look at Gold and seeing a drastic move a “safe haven” asset would usually see on a broad equity market falls like this, up barely 0.1%. Is Gold losing its safe-haven status?