Thursday Market Briefing 06-11 — Volatility!

Stocks are set to open sharply lower this morning.

Investors are responding to a gloomy economic picture painted by Fed Chariman Jerome Powell yesterday, along with concerns about new coronavirus hot spots around the country.

It can actually be healthy for the markets to trade back and forth for a bit — especially after the sharp rally that we’ve had for the past three months. The key here is to make disciplined logical decisions instead of letting fear or greed dominate our choices.

Dow June Futures: Down 781 (2.97%)
S&P June Futures: Down 89 (2.49%)
Nasdaq June Futures: Down 173 (1.70%)

This is the first big down morning that we’ve seen in a while. And lower stock prices will naturally cause some investors to bail out of positions.

In the hedge fund world, we called this “shaking out the weak holders.” Investors who have less conviction will exit their positions. And that leaves more committed investors holding stocks.

Ultimately, this can be a very good process for the markets to go through. After a shakeout like this, markets can be free to advance with confident investors driving the action.

Gold June Futures: Up 25.5 (1.47%)
Silver June Futures: Up 0.41 (2.28%)

Gold rebounded sharply following the Fed’s meeting. All 17 members of the Fed said that they expect to hold interest rates near zero for the next year — and most agreed that rates should stay low through 2022.

In addition, the Fed will continue to purchase treasury and mortgage securities, helping to pump more liquidity into the market.

More cash flowing into the market should add pressure to the value of the dollar and lead to higher precious metal prices.

Yesterday’s move puts gold in the middle of its wide range that we’ve been tracking. While silver continues to consolidate its strong gains from May.

10-Year Yield: 0.677%  
2-Year Yield: 0.175%

Rates on longer-term bonds are moving back down again helping to prop up bond prices.

The 10-year bond is now trading back in the middle of the tight range from this spring. So for now, it looks like last week’s breakdown was a headfake rather than a true change in trend. 

The Fed’s decision to keep rates low for the next two years will certainly help to support treasury bonds. But I still see risk to the downside from this point.

Breaking Morning News

Yesterday’s Fed meeting focused on continuing risks to the economy and a long-term commitment to keeping rates extremely low. Fed members all expressed a desire to keep rates near zero for an extended period of time, and the Fed will continue its pace of buying treasury bonds and mortgage backed securities.

In an encouraging sign for the U.S. economy, fewer people applied for unemployment benefits last week. This marks a 10th week of falling claims, helping to give investors and businesses confidence that the wheels of commerce are once again turning.

Shares of one of the most-loved stocks in today’s market hit a major milestone this week. While Tesla Inc. (TSLA) still isn’t manufacturing a reliable profit, the company may start manufacturing an electric semi truck. Apparently the rig can accelerate from zero to 60 mph in just 5 seconds. (I’m not sure why you would want to do that with a truck.)

Chart of the Day

 

The gold market is heating up in the nation’s “financial capital.”

As coronavirus concerns pressure the economy, and the financial system deals with the stress, U.S. demand for gold is picking up. This, at the same time that gold buying in China and India have declined.

I’m intrigued with the logistical supply chain and some of the secret private jet transports of gold that have been taken place. Ultimately, strong demand for gold by investors in the U.S. should drive gold above $2,000 — and we may even see $3,000 gold before the year is out!

Quote of the Day

Buy on the sound of cannons, sell on the sound of trumpets. ~Nathan Rothschild

Final Thoughts

The pullback this morning may cause some investors to panic. So don’t be surprised if we see some wild swings throughout the day.

But overall, this type of action is a natural part of the market’s recovery. And when we get to the other side of this volatile period, confident investors should help to support the strongest stocks with biggest earnings potential.

Talk to you tomorrow!

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Zach Scheidt