Fresh from an encouraging performance by US stocks on Monday, equity bulls will be hoping that key imminent meetings will enable stocks to stage a more convincing recovery, as they attempt to cast aside the fallout from September’s selloff. Global investors will be monitoring the televised debate between US President Donald Trump and Democratic challenger Joe Biden, even as they await further developments around talks between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin about the next US stimulus package.
Having climbed nearly five percent since its September 24th low, S&P 500 minis are now testing their 50-day moving average as a resistance level, with the momentum also turning bullish over recent sessions. At the time of writing, futures contracts for all three major US indices are trading in positive territory, although the FXTM trader’s sentiments on the Wall Street 30 (Mini) remains net short.
Despite the S&P 500 still being down 4.25 percent for the month, equity bulls must have been heartened by the index’s performance on Monday. The US stock benchmark saw a broad-based rally in the opening hour of trade, with 97 percent of its constituents climbed in the first hour. At the close, the tally was 93 percent, which is the greatest number of stocks that advanced together since June. As market participants shy away from the tech-centric growth story that had been a mainstay of the US stock market over recent months, and plough further into the rotation play on hopes that more sectors of the economy can push into the post-pandemic era, that could give fresh legs to stocks’ remarkable climb seen since March.
However, investors face the risk of market sentiment being rocked as Trump and Biden face off on Tuesday night in the US. As an oversimplification, a convincing performance by Trump over Biden could hearten stock markets. Still, with polling day set to happen in exactly five weeks from today, the rising political risks are too consequential for investors to ignore, and the uncertainty in the interim could prompt wild gyrations in the weeks ahead.
Pelosi and Mnuchin are also set to meet for a third consecutive day, as lawmakers attempt to overcome the political impasse and get more financial aid flowing into the US economy. With House Democrats having unveiled a fresh, though lesser, proposal of US$2.2 trillion, the ongoing negotiations appear to be a last-chance saloon for a fiscal support package to be passed before the November elections, with such a scenario having been deemed almost impossible just a few days ago. Though it still appears to be a long shot, equity markets are likely to remain encouraged as long as both sides continue to come together at the negotiating table. If passed, this US$2.2 trillion package would be smaller than the US$ 3.4 trillion deal that was approved back in May, though any amount would be welcomed by the world’s largest economy, which risks stalling in its recovery if no further aid is rendered over the coming months.
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