CNBC/Yun Li and Fred Imbert
Dow closes 650 points lower, posts worst day since early September
Stocks fell sharply on Monday as coronavirus infections jumped and negotiations for a fiscal stimulus package before the election stalled once again.
The Dow Jones Industrial Average closed 650.19 points lower, or 2.3%, at 27,685.38. The S&P 500 slid 1.9% to 3,400.97 and the Nasdaq Composite dipped 1.6% to 11,358.94. Monday’s decline erased the monthly gains for the Dow Industrials. It was the Dow’s biggest one-day drop since Sept. 3 and its first close below 28,000 since Oct. 6. The Dow briefly fell as much as 965.41 points, or 3.4%.
The decline came as data compiled by Johns Hopkins University showed daily coronavirus cases in the U.S. have risen by an average of 68,767 over the past seven days, a record. On Sunday alone, more than 60,000 cases were reported. The country saw more than 83,000 new infections on both Friday and Saturday after outbreaks in Sun Belt states, surpassing a previous record of roughly 77,300 cases set in July.
“To me, this is Phase 2 of the pandemic,” said Frank Rybinski, chief macro strategist at Aegon Asset Management. “Until we get some eradication of the virus, it’s going to be like a gray cloud” over the market. Rybinski added his firm has been “reducing risk” from its portfolios in recent months.
Optimism also dimmed over the White House and Republicans striking a stimulus deal with Democrats before the election. White House economic advisor Larry Kudlow told CNBC’s “Squawk Box” on Monday that talks had slowed down, but noted they are still ongoing.
Gold is a sea of stability as equities drop 2%, oil falls 3%
The gold market appears to represent a sea of stability Monday as prices hold above $1,900 an ounce while equity markets and oil prices see sharp declines.
The gold market is holding steady; December gold futures last traded at $1,906 an ounce, relatively unchanged on the day.
However, the S&P 500 is down 2.5% on the day; meanwhile the Dow Jones Industrial Average is down 2.9% on the day. In commodity markets, oil prices are down more than 3%.
For some market analysts, the price action in gold is not surprising as it remains a bastion of strength in an environment that is dominated by low interest rates, uncertainty, and turmoil.
“This is what a safe-haven asset is supposed to do,” said Charlie Nedoss, senior market strategist with LaSalle Futures Group. “Gold is finally starting to act like a safe haven asset as it outperforms everyone. It’s outperforming as the U.S. dollar looks a little directionless.”
The question now is if gold’s relative strength can last as the U.S. inches closer to the Nov. 3 General Election, which is now only eight days away.
Robin Bhar, an independent analyst, said that after what has happened this year, a 2% drop in equities isn’t enough to spook investors to liquidate important assets, like gold, in order to raise capital.
Gold prices gain as coronavirus cases surge
Gold prices rose on Tuesday after a fresh wave of coronavirus infections raised concerns over a global economic recovery and bolstered the precious metal’s safe-haven appeal.
Spot gold gained 0.3% to $1,908.02 per ounce by 0321 GMT.
U.S. gold futures were up 0.3% at $1,911.20.
“With rising virus cases globally, especially in the west, gold’s appeal as a safe haven is coming to the fore,” said Howie Lee, economist at OCBC Bank.
However, gold is likely to stay close to the $1,900 level until the U.S. presidential election outcome becomes clearer, Lee added.
Many countries, including the United States, Russia and France, are setting records for Covid-19 infections and forcing some of them to impose new restrictions.
Uncertainty over fresh U.S. stimulus has kept gold trading in a range over the past few weeks, with the metal now about 8% away from a record high of $2,072.50 hit in August.
While U.S. House Speaker Nancy Pelosi expressed hope that an agreement can be reached on the coronavirus relief package before the elections, White House economic adviser Larry Kudlow told reporters on Monday that talks have slowed.
Gold, widely viewed as a hedge against inflation and currency debasement, has gained about 26% this year boosted by unprecedented stimulus measures from central banks and governments globally to blunt the economic hit of the pandemic.
“Gold is still looking for that elusive inflationary spark,” Stephen Innes, chief global market strategist at Axi said in a note.
Reuters/April Joyner and Lewis Krauskopf
U.S. stock market braces for rocky week ahead of contentious U.S. election
Wall Street faces a rocky run-up to Election Day, with mounting worries about the outcome in Washington adding to nerves about the coronavirus pandemic and fading chances of stimulus.
The Cboe Volatility Index, Wall Street’s “fear gauge,” surged to 32.46, its highest closing level since Sept. 3., while the S&P 500 had its biggest one-day drop, with investors reluctant to buy ahead of the vote.
“What we’re seeing today is people setting up for Election Night: raising cash to preserve capital, lock in capital gains at a lower rate, and to have some cash available for the growing eventuality of lower prices,” said Robert Phipps, director at Per Stirling Capital Management in Austin, Texas.
Investors have been betting on a win by Democratic challenger Joe Biden by buying alternative energy shares and cannabis stocks, which are expected to benefit from his policy proposals. Bond yields have climbed, partly in anticipation of greater stimulus under a Biden administration.
Some of those bets looked a bit weaker on Monday. For instance, the Invesco Solar ETF was down 2.1% and bond yields slipped.
Before Monday, investors appeared to be dialing back on election-related volatility bets on the expectation of a clean win. As stocks fell, however, VIX futures rose along with the volatility index.
Now market watchers worry that an unexpected victory by President Donald Trump, a Republican, or an uncertain election outcome could force drastic unwinding of positions similar to what occurred in 2016, when investors were overwhelmingly positioned for a Hillary Clinton presidency.