Market Commentary: Rally stalls, though tech shares manage a gain

StockFanatic

Publish date: Wed, 10 Jun 2020, 11:57 AM

· The S&P 500 and Dow fell on Tuesday, pausing after recent strong gains as focus shifted to the Federal Reserve, while the Nasdaq ended at an all-time high for a second straight day after briefly rising above the 10,000 mark for the first time.

· While no major policy announcements are expected when the US central bank wraps up on Wednesday (US time), investors will scrutinise its remarks on the health of the economy, which has been reopening after coronavirus-related closures.

· Some expect the Fed to shed light on various lending plans without easing further. Jerome Powell and his team are unlikely to take comfort in May's payroll report and "will remain considerably dovish" about their outlook, Bloomberg Economics wrote.

· Fed officials will also publish their employment and growth targets for the first time since the outbreak amid increasing focus on the racial disparities in joblessness. The Fed had skipped a forecast in March just as the pandemic forced the abrupt shutdown of the economy.

· Financial and industrial shares, which have been among stocks that have surged in recent weeks on hopes of an improved economic outlook, were the biggest drags on the benchmark S&P 500 on Tuesday.

· The Dow Jones Industrial Average fell 300.14 points, or 1.09%, to 27,272.3, the S&P 500 lost 25.21 points, or 0.78%, to 3,207.18 and the Nasdaq Composite added 29.01 points, or 0.29%, to 9,953.75.

· The pause did not surprise analysts, coming as it did after the run-up in recent weeks. Profit-taking was to be expected.

· The US presidential election could re-emerge as a potential risk to markets after a shift in polls that has seen President Donald Trump lose ground to Democrat Joe Biden.

· Election-related risk captured in VIX futures has risen to about three times the levels seen ahead of the 2012 and 2016 elections based on the spread between September and October futures, according to Susquehanna Financial Group. VIX futures reflect volatility expectations for the month-long period after their expiration.

· A Democratic victory could threaten policies championed by Trump and generally favoured by Wall Street, including lower corporate tax rates and fewer regulations, analysts said.

· Tax has been one major area of contrast between the two presidential contenders. Analysts at Goldman Sachs have estimated that Biden's tax reform, if enacted, would reduce earnings for S&P 500 companies by around US$20 a share in 2021, to US$150 a share. Netflix Inc, Visa Inc and Salesforce.com Inc are among the companies that have received a bigger than average benefit from the 2017 tax reform, the bank said.

· A Trump win, on the other hand, could raise concerns over the continuation of a US-China trade war that has periodically roiled markets over the last several years. Trump has already taken a harsher tone on China in recent weeks.

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