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MARKETS RALLY AFTER MONDAY PLUNGE TO SET NEW RECORDS
After a 725-point plunge on Monday, 19 July, the Dow Jones Industrial Average rallied through the week to close above 35,000 for the first time.
Despite concerns that the Biden Bounce would slow down as the Delta variant fears sped up, other indexes also rose on optimism that strong earnings reports would continue to increase.
Of the 110 S&P listed companies reporting second-quarter earnings through 22 July, 88 percent beat analysts’ forecasts, data firm FactSet reported.
The NASDAQ ended the week at a record 14,836; the Standard and Poor’s 500 Index added 44 points to 4,411, its 40th record close this year.
Treasury yields and oil prices also rebounded from a slide at the week’s open, with benchmark Brent crude settling Friday at $74.10 a barrel.
Health care companies and businesses benefiting from people staying home led gainers. Shop-at-home website Etsy jumped 13 percent for the week, vaccine maker Moderna shot up 23 percent, and Facebook and Twitter both added at least 8 percent.
Although numbers of new COVID cases are rising, governments in the U.S. and Europe are unlikely to force new lockdowns, money managers told The Wall Street Journal.
“You have an earnings season that’s going tremendously well,” Seema Sha, chief strategist at Principal Global Investors, said in a WSJ interview. She added that although the virus is still troubling, “the path ahead is not that negative and there is a lot of ‘buying the dip’”.
TREND FORECAST: That was last week. As we have reported extensively in this Trends Journal, the new mandatory vaccine passport, mask wearing, border/tourism/business travel restrictions, lockdowns in many nations, etc. now being imposed will negatively impact economic growth.
And, in nations where the autumn and winter seasons will begin in coming months, the COVID variant fears and restrictions will be ramped up. Thus, the more restrictions and the greater the spread of hysteria, the deeper the equity markets and commercial real estate sector will fall.
To make this crystal clear, there will be a sizable minority that will refuse to get vaccinated, thus sectors that depend on strong economic growth will suffer from declining revenue streams.
Upside?
IHS Markit’s July purchasing managers index (PMI) in the U.S. service economy showed expansion continuing, although at a slower pace than in June, due to rising costs and shortages of materials and workers, the WSJ said.
The manufacturing sector’s PMI set a new record high as the pace of new orders and production both sped up.
Last week, the Stoxx Europe 600 rose 1.5 percent; China’s Shanghai Composite Index edged up 0.3 percent.
Again, that was last week.
It was coming, and now it’s here. On Friday Beijing’s across-the-board crackdowns of its technology and education sectors pushed the Nasdaq Golden Dragon China—which tracks 98 of China’s biggest firms listed—down 8.5 percent. Falling 7 percent yesterday, the index registered its steepest two-day decline since the Panic of ’08.
Today, China’s mainland Shanghai composite closed down 2.49 percent and the Shenzhen component fell 3.67 percent. Over in Hong Kong, in response to the Chinese government imposing antitrust regulatory actions on high-tech and the education sector, Hong Kong’s Hang Seng index fell 4 percent yesterday and closed down 4.22 percent today. Note, that a decline of 10 percent is considered a “correction” and a 20 percent drop is a bear market.
On the somewhat upside in China, Industrial firms’ June profits rose 20 percent year-on-year, but that was down from May’s 36.4 percent year-on-year increase in May.
On the U.S. Front
Feeling the Chinese market pressure, today, for the first time in six days, U.S. stocks closed lower, with the Dow, after falling 266 points earlier, closing down 84.73 points, the Nasdaq Composite was off 1.2 percent, and the S&P 500 slid 0.5% percent.
GOLD/SILVER: Gold remains in its low $1,800 per ounce trading range. With fears of the Delta variant signaling more government lockdown measures, silver, along with many commodities took a hit, falling 2.5 percent to close at $24.53 per ounce.
TREND FORECAST: With nations across the globe ramping up COVID War 2.0 to fight the Delta variant, economic growth will decline. Unlike the first round of the COVID War when consumers sped up spending on home goods and “essentials”… should the lockdowns and other draconian orders be re-imposed by politicians, this buying spree trend has been played out.
In addition, unlike round one of the COVID War, with governments already deep in debt by pumping in tens of trillions to boost economic growth, there will be less available funds to inject into failing economies.
And for those nations that do go deeper in debt to re-inflate economies, the more cheap money they print, the deeper their currencies will fall and the higher their inflation rates will rise… which will in turn be bullish for precious metals.
OIL: Brent Crude closed at 74.76 per barrel, extending its gain from last week when it was trading in the $69 per barrel range. After losing 16 cents a barrel yesterday, West Texas Intermediate was up 8 cents today with both rising as gamblers are betting that high vax rates and tight oil supplies will offset fears that the Delta variant will slow down economic growth.
TREND FORECAST: As we have noted, expecting the economy to rapidly expand in the second half of the year and world oil demand to grow by 6.6 percent in 2021, OPEC+ made a deal several days ago to increase supply by 400,000 barrels per day beginning 1 August.
Thus, we maintain our forecast that since timing is everything, they ordered the supply increase at the perfectly wrong time. With increasing fears that the Delta variant will sweep the globe and the growing reality that politicians will enforce more lockdowns and other mandates to fight the COVID War 2.0… economies will slow down. Thus, there will be more supply than demand which in turn will drive down oil prices.
BITCOIN: Last week bitcoin was trading in the $29,000 range. As we have been forecasting for years, the harder regulators around the world clamp down on cryptocurrencies, the lower the prices fall. And most recently China, Thailand, Japan and Canada had stepped up regulatory scrutiny on crypto mining and trading.
From its last week’s low, the volatile crypto coin spiked up more than $10,000, topping $40,000 per coin… pumped up in part on Elon Musk’s announcement that his company holds $1.3 billion in bitcoin. As we go to press, the cryptocurrency is still showing strength, trading at $37,872 per coin.
TREND FORECAST: We maintain our forecast that on the upside, should bitcoin steadily trade in the high $40K per coin range it can well exceed its previous highs hitting above $70K per coin.
On the downside, we maintain our forecast that should Bitcoin fall in the mid to low $25,000 range it will plunge deeply into the teens and lower per coin.