Major US indices came under pressure on Thursday following a series of economic data pointing at solid recovery in the US. The ADP report revealed that the US economy added almost a million jobs in May with improved job additions in leisure and hospitality, the initial jobless claims fell below the 400K for the first time since the beginning of the pandemic in the continuation of a clear waning trend, while the ISM services PMI pointed at a faster-than-expected recovery in activity. Strong economic data revived the Federal Reserve (Fed) hawks and expectations that the tapering talk should happen sooner rather than later, especially now that the Fed announced it would start gradually unwinding its $13.7 billion US corporate debt and ETF holdings.
Gold tanked below $1854 per ounce on prospects of a steeper rise in the US yields in case of a sooner than expected monetary policy tightening. On one hand, gold is sensitive to the low-risk return, the higher the yields the lower the appetite of holding a non-interest-bearing asset. On the other hand, gold is still a solid inflation hedge and strong economic data, which is a boost for inflation expectations, should throw a floor under the gold’s feet. The 50-day moving average, near the $1800 mark should provide support to a further sell-off in the yellow metal.
In summary, yesterday’s good news was bad news for gold and stock investors, although news that Biden would compromise on corporate tax hike somewhat cooled off the selling pressure. But yesterday’s market action gave a hint that if we see a strong NFP figure today, there could be a further sell-off across the equity markets, and the technology stocks would be on the chopping block.
On individual level, Amazon and Apple have slipped below their 200-day moving average this week and are both testing the bottom of a positive trending channel baseline. Technically speaking, I don’t see an alarmingly fast sell-off in these stocks; the RSI index is not yet in the oversold territory; therefore, the negative pressure could continue in the short run. However, I don’t necessarily see these companies’ stocks being sent to a significant medium-term bearish trend even in case of a tighter monetary policy, as besides their gigantic growth potential, the US tech giants continue impressing their investors with strong financial results quarter after quarter. Therefore, price pullbacks in US tech giants could be interesting buy opportunities, yet for those who are willing to risk a certain slowdown in the rally due to an increased appetite for cyclical stocks or value names in the context of reflation trade.
Forecast-wise, it is hard to give a call. A consensus of analyst estimates point that the US economy may have added some 650K new nonfarm jobs in May, but I would not be surprised to see a figure as low as 100K or as high as a million, though looking at the trend in weekly jobless claims, I would rather expect a relatively strong number, at or above 500K, than a surprise soft figure near the 200Ks as printed last month.
Now let’s finish with news on companies that don’t care about the economic recovery, data, market sentiment or taxes, but which see their stocks pumped and dumped on social media talks. AMC Entertainment had a rough session yesterday, down 40% than up 50% from the dip. The company even sold 11.5 million more shares but warned investors that investing in their stock would lead them to substantial losses. Now looking at the chart, I see signs of waning in this renewed wave of short squeeze. Fundamentally, the rally in AMC which is a struggling movie theater chain since pre-pandemic times, is hard to justify given that even the end of the pandemic would not boost the business to match what we see in terms of price action nowadays. While Hollywood’s big producers like Disney are turning into streaming, I sadly do not see how a movie theater could pull its head above water in the longer run. In the short run however, there is simply too much liquidity in the market which leads to this kind of anomalies, and that is certainly another reason why the Fed may want to consider a certain readjustment in its policy.
