Stocks Look Ready To Test New Highs Amid Vaccine Optimism And Stimulus Hopes

S&P 500 Settled Close To All-Time Highs

Yesterday, S&P 500 pulled back a bit but still closed near all-time highs despite the alarming U.S. economic data.

The recent Initial Jobless Claims report indicated that 778,000 Americans filed for unemployment benefits in a week, up from 748,000 in the previous week. In addition, Personal Income declined by 0.7% month-over-month in October.

The economic data points to the necessity of another round of economic stimulus. There are no active stimulus negotiations at this point, and the market will have to wait until Joe Biden gets into the office in late January.

However, the stock market is usually focused on future developments rather than on near-term challenges, and the current consensus is that U.S. will be ready to deliver a big stimulus package soon after Biden is inaugurated.

In combination with positive vaccine news, stimulus hopes continue to push stocks higher. I’d note that there is some rotation from high-flying tech stocks to more cyclical stocks but there are no signs of any material sell-off in tech which is very promising for market’s chances to test new highs in the remaining weeks of this year.

Gold May Have A Good Chance To Rebound After Recent Sell-Off

The main victim of the recent market optimism was the precious metal segment. Gold and silver were under significant pressure as traders sold safe haven assets.

However, more stimulus means more money-printing which is bullish for gold. In addition, Janet Yellen as the next Treasury Secretary will likely implement a very dovish strategy while the Fed may keep rates at the bottom until 2024. This is a setup for a weaker U.S. dollar and strong gold.

It will be interesting to see whether traders will rush to buy gold near the $1800 level or wait until it gets closer to the stronger support at $1750. Shares of gold miners have already received some support in the previous trading session which indicates that there’s some interest in gold-related instuments at current levels.

Oil Rally Will Get Tested By Reality

Bad news are coming from Europe – while lockdowns are set to end, European countries will keep many anti-virus measures in place until mid-January to contain the spread of the virus. Germany’s Merkel is even thinking about closing ski resorts all over Europe.

The continued problems on the coronavirus front in Europe will lead to weak demand for oil. It remains to be seen whether growth in Asia will be able to offset this weakness and push oil prices to higher levels.

Oil-related stocks enjoyed a very strong rebound in November and pullback risks are high unless oil manages to continue its rally. Today, oil is moving lower in a thin market, but the real test is due next week when all traders return to their desks after holidays.

For a look at all of today’s economic events, check out our economic calendar.