Wall Street continues to see investors scale down their mega-cap tech bets and focus on beaten energy, industrial, materials, and consumer discretionary stocks. Tech’s meteoric rise couldn’t last forever, but by no means is it over. A tighter regulatory environment and higher taxes could be a drag for tech with a Biden presidency, but weakness should be limited to only a few percentage points.
Following President Trump executive orders over the weekend, expectations should be high that Congress gets their act together and reach a more comprehensive fiscal package for the economy. The pressure is on the Democrats to offer a meaningful concession and likely a deal will emerge in the $1.5-2.0 trillion area.
With the Fed buying credit and indirectly saving US stocks, traders should not expect any major corrections even if the selling of tech stocks persists deeper into the trading week.
Oil
Crude prices are higher after Saudi Aramco’s optimistic outlook that demand could return to the mid-90’s by year end. Aramco’s positive view on the market was the first of four critical insights to the crude demand outlook for this week. On Tuesday, the EIA publishes their monthly short-term energy outlook, Wednesday, OPEC will release its monthly report, followed by the IEA on Thursday.
The general theme for the week should be the economic recovery is stalling across the globe and that stimulus efforts will intensify to support the economy. Oil prices are not ready to break above its recent trading range as demand fears will persist until we see how bad it gets during the fall wave of the coronavirus. OPEC+ is saying all the right things, but if the cheaters do not follow through on their promises, prices could sharply drop on oversupply worries. Oil might tentatively break out higher, but a sustained move is unlikely until the demand outlook strongly improves.
Gold
After skyrocketing for much of the last three weeks, gold was ready for a healthy pullback, especially after Congress wasted two weeks of negotiations over a much-needed rescue package. President Trump’s executive orders over the weekend to extend coronavirus relief will likely put the pressure back on Congress to get something done over the next couple weeks.
Gold will continue to see strong inflows as the fiscal standoff will still ultimately lead to another $1-2 trillion of stimulus getting pumped into the economy. Gold is also seeing steady safe-haven buying from the painfully slow deterioration of the US-China relationship. China retaliated over the sanctions of 11 Chinese officials and allies in Hong Kong with their own sanctions on 11 US citizens which include Ted Cruz and Marco Rubio. This relationship appears unrepairable and could soon lead up to the tearing up of the phase-one trade deal. Both the US and China economies need each other given the fragile recovery from COVID-19 and an ultimate divorce between the two world’s largest economies will likely fuel strong safe-haven flows for gold.
Bitcoin
After a wild start to the trading week, Bitcoin and the other top cryptocurrencies are rising higher after Russia decided to avoid banning cryptocurrencies and as Facebook remains committed to creating a payments platform to run through all their projects. Bitcoin’s latest rally was predominantly following the unprecedented stimulus trade that triggered the dollar’s demise, but now the next move higher seems to be taking form on improving fundamentals for the crypto space. Bitcoin should continue to attract further institutional interest as big Tech breaks becomes a bigger part of daily transactional payments. Bitcoin seems poised to make a quick run towards the $12,000 level and eventually the $13,200 region.