US Close – Rally mode on vaccine/treatment optimism, Oil pares gains as storm weakens, Gold stumbles

US stocks continue to make fresh record highs on both treatment optimism and investors rotate back into beaten up sectors.  The FDA cleared what’s known as convalescent plasma for use in certain COVID-19 patients.  This plasma could be used in patients with serious or immediately life-threatening COVID-19 infections. 

President Trump is playing catchup in the polls and is ready to do whatever it takes to make Americans more confident with the outlook going forward.  Trump is considering fast-tracking an experimental coronavirus vaccine from the UK before US election.  Sidestepping US regulatory standards, Trump seems likely to invoke EUA “emergency use authorization” if the small UK study works. 

A steady flow of progress with COVID-19 treatments/vaccines is delivering the latest boost to risk appetite.  Market breadth however does not support the surge to record high territory for US indexes.  Almost 60% of the S&P 500 companies are above their 200-day moving average, similar to what occurred right before the tech bubble that popped at the start of the millennium. 

ChiNext

The love for technology stocks continued in China after the ChiNext delivered a successful debut of at least 18 firms.  Mainland China’s Nasdaq-like ChiNext is allowing new listings to trade freely in the first five days.  Demand is likely to remain strong from China’s state-back funds.  Volatility will remain high with the ChiNext, but for now it seems in China they will have the most upside potential. 

Oil

Crude prices gave up earlier gains after Tropical Storm Marco, the first of two storms in the Gulf of Mexico, weakened enough for the National Hurricane Center to discontinue the tropical storm and storm surge warnings.  Energy markets have already priced in Tropical Storms Marco and Laura impact in shutting down more than half the crude output in the Gulf of Mexico. 

Oil prices continue to play tug-of-war as supplies tighten versus improving prospects of rising crude demand as optimism grows with the COVID-19 treatment and vaccine front.  WTI crude seems poised to remain trapped in its recent range as light volumes persist.

Gold

Gold prices stumbled as coronavirus treatment and vaccine hopes grow.  The outlook is still bullish, but the precious metal could remain vulnerable in the short-term if dollar can muster up a rally here.  A key driver in gold’s weakness was the FDA’s emergency use authorization for investigational convalescent plasma to treat COVID-19 patients, which many investors are disregarding the skepticism given by many scientists.  Gold bulls will have to withstand a wrath of optimism that treatments and a vaccine will be in place next year.

Safe-haven assets also did not get any favors from perceived easing in US-China trade tensions, but that seems to be only temporary.  A lot went wrong for gold to start the trading week, but the stimulus trade remains intact due to the damage to the labor market and a tremendous amount of uncertainty persists regarding COVID-19.  Virus uncertainty will persist until the coronavirus phase 3 expectations are met and the Northern Hemisphere shows some early success with the winter wave of the virus.    

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