Investors are bracing for a busy week in the markets that could bring the stock market rally to a grinding halt just ahead of the holiday weekend.
The rising number of coronavirus cases is just one of the worries facing Wall Street. This happens as a record 45,000 new cases were reported on Friday, according to data from Johns Hopkins University.
The number of reported new cases has soared in recent days. With this, numerous states, including California, Texas and Florida, have stopped or rolled-back reopening efforts. That spells trouble for the already battered hospitality and retail industries that could be facing a second round of closures.
Apart from the number of coronavirus cases, MarketWatch has identified six more factors. These factors could roil the markets in the coming days and weeks.
On Thursday the Labor Department will release the June jobs report. The May report, while controversial, showed a gain of 2.5 million jobs. With this, investors will be looking to see if the momentum was carried into June. Expectations are for 3 million jobs to have been added in June and an unemployment rate of 12%, down from 13.3% in May.
Investors are rightfully concerned that the May increase was a one-time jump due to a combination of PPP loans and early reopening measures. A disappointing report could send the market plunging lower, just as the surprisingly-positive May report fueled the rally higher.
Ryan Detrick, senior market strategist at LPL Financial, cautions investors not to expect the recovery, in large chuncks and all at once, of all 40 million lost jobs, pointing out that in previous recessions it took an average of 30 months to fully recover the lost jobs.
“As good as the recent economic data has been, we want to make it clear, it could still take years for the economy to fully come back.” said Detrick.
End of Quarter Portfolio Rebalancing
As we discussed last week, there’s an estimated $75 billion that could be moving out of stocks as pensions, mutual funds and other large investors look to rebalance their portfolios after stocks climbed roughly 20% this quarter.
Brian Price, the head of investments for Commonwealth Financial Network, told MarketWatch, “Given the significant rally in global equities that we’ve seen in the second quarter, it is natural to believe that there will be some quarter-end rebalancing out of stocks and into bonds. The volatility that we’re seeing in the market today could absolutely persist as we approach the end of the quarter next week.”
Battle Over Additional Stimulus Funds
The Democrat-controlled House approved the $3 trillion HEROES Act last month and it’s going nowhere in the Republican-controlled Senate. But even Republicans are split on the need for another round of stimulus. Some also believe that as the economy is showing tentative signs of recovery that any future stimulus should be put on hold. Others, including President Trump, are signalling that another relief plan is forthcoming. The longer it takes to have another bill approved, the greater the chance the economy could plunge before an action takes place.
Biden’s Lead Grows In Early Polling
Wall Street starts to consider a potential victory in November for Joe Biden. With this, it begins to plan for what his tax plans will do to corporate profits.
Goldman Sachs estimates that a Biden victory would cut 2021 earnings per share for the S&P 500 from $170 down to $150. As we draw closer to November, the market will then continue to react to each and every projection for who will be in office come January.
On Friday, the QQQ, which tracks the performance of the Nasdaq 100, closed below its 20-day moving average. It happened for the first time since early April. Yes, this is a short-term indicator. However, it could mean the market is ready to take a pause from the torrid rally since late March.
Low Trading Volume
As the market is closed on Friday in observance of the July 4 holiday, traders leave early and trading volume typically drops over the course of the week. This means volatility can increase dramatically as there is less trading to smooth out any major swings.