U.S. Stocks Set To Open Lower Amid Fears Of A Second Wave

Coronavirus Is In The Spotlight Again

S&P 500 futures are losing about 2% in the premarket trading session as traders fear that a potential second wave of coronavirus will hurt economic recovery.

In China, authorities had to implement strict virus control measures in Beijing after the new outbreak of the disease. In the U.S., many states have recorded an increase in both coronavirus cases and hospitalizations.

Many officials all over the world have stated that an implementation of a second wave of lockdowns was not viable due to the economic impact of such measures. However, it remains to be seen what measures will be taken if the world has to face a second wave of COVID-19.

Stocks Were Due For A Pullback

S&P 500 has briefly fallen below the 2200 level in mid-March before rebounding above 3200 in July. This rally was based on the unprecedented monetary stimulus from the world central banks including the U.S. Federal Reserve as well as hopes for a V-shaped recovery.

On its way up, S&P 500 did not have any significant pullbacks as any downside moves were quickly bought by traders and investors who feared that they can miss a major upside move.

In this environment, S&P 500 did not need too many downside catalysts to pull back from recent highs as stock prices implied a swift recovery without problems. In all likelihood, the economic reality is going to be more challenging so the current pullback is not surprising.

At the same time, it is not clear whether stocks will be able to fall to lower levels as those players who have missed the recent upside move could start picking up cheaper stocks.

Gold Fails To Get Above $1750

Today, the market pressure is broad-based, and even safe haven assets like gold or the U.S. dollar are losing ground. The U.S. Dollar Index, which measures the strength of the U.S. dollar against a broad basket of currencies, failed to settle above 97.5 and is down closer to 96.

Meanwhile, gold has declined closer to $1700 which could lead to a tough session for gold mining stocks. I’d note that gold has originally suffered during the first wave of the market sell-off but later rebounded to higher levels, and a similar scenario is possible in case the stock market downside continues.

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