Tuesday, June 22, 2021

Dow Jones Notches Strongest Session Since March

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News shaping
the markets today

     

What’s happening: US stocks rose sharply on Monday, with the Dow Jones index jumping more than 500 points.

What happened: Wall Street has recorded its worst weekly performance in several months last week, following the hawkish policy stance from the Federal Reserve.

The Dow and S&P 500 recovered sharply on Monday, led by a surge in stocks expected to benefit from an economic rebound.

Why it matters: Value stocks have recorded sharp gains so far this year, providing a boost to the US markets. However, investors shorted US equities last week, giving up stocks of companies that are poised to benefit from an economic recovery. This was on concerns around an earlier-than-expected rate hike by the Fed due to higher inflation woes.

Materials and financial stocks shed more than 6% last week, with the energy sector losing around 5%. The Dow Jones index ended the week with losses of 3.5%, while the S&P 500 declined by 1.9%.

“The Fed’s ‘surprise’ move toward tapering that took markets lower last week is just the moment of recognition for a tightening trend that began months ago,” said Mike Wilson, Chief US Equity Strategist at Morgan Stanley.

Investors took advantage of attractive entry points into some of the leading stocks on Monday, after US equities plummeted last week.

The Dow Jones index recorded a sharp recovery on Monday, climbing around 587 points to settle at 33,876.97. This marked the best session for the index since March 5. Mirroring the blue-chip index, the S&P also rose 1.4% to close at 4,224.79. All sectors of the index recorded gains during Monday’s session, led by energy and financial stocks. Banking stocks spiked over 1.5% on Monday, after hitting a two-month low last week.

The Nasdaq 100 was the relative underperformer, rising only 0.62% to settle at 14,141.48. The decline in Tesla and Amazon shares weighed down the tech-laden index.

Cryptocurrency related stocks remained under pressure on Monday, on news of China continuing to crackdown on Bitcoin mining.

What to watch: Investors will keep an eye on comments from Fed Chair Jerome Powell, who will testify before the Congress today. Markets also await data on existing home sales, which unexpectedly fell by 2.7% to 5.858 million in April and is projected to decline another 1% in May. Investors will also monitor remarks from various Fed members this week for further signs of a rate hike.

The Markets Today

     

Oil will be in focus today, ahead of data on crude stockpiles from the American Petroleum Institute (API).

Context: Oil recorded sharp gains on Monday, with prices jumping to their strongest level since 2018.

Details: Crude oil futures notched gains last week, although various commodities staged a decline due to the rapid appreciation in the US dollar. A stronger greenback generally makes commodities priced in US dollars more expensive for holders of other currencies.

Oil traders have recently been cheering news of covid-19 vaccinations around the world gaining momentum, which is expected to result in a significant pick-up in travel.

Oil prices continued their advance on Monday, supported by a pause in the US-Iran nuclear deal talks, after hard-line judge Ebrahim Raisi won Iran’s presidential election. A deal would have resulted in a significant amount of crude supply being added to the markets.

Crude prices were also supported by the decline in the US dollar on Monday, after the greenback hit a two-month high last week.

Bank of America analysts said they expect Brent crude to average $68 per barrel in 2021 but are bullish about prices climbing to $100 per barrel next year.

WTI crude for July delivery rose 2.8% to end at $73.66 barrel on the NYMEX on Monday, with the contract for July expiring after today’s session. August Brent crude added 1.9% to settle at $74.90 per barrel on the ICE Futures Europe. Both the benchmarks recorded their strongest close since October 2018.

In other energy-related commodities, July gasoline rose 1.3% to $2.20 a gallon, while July natural gas ended at $3.19 per million British thermal units on Monday, with a loss of around 0.8%.

What to watch: Traders await API’s data on crude oil stockpiles, which declined by 8.537 million barrels in the week ending June 11, following a 2.108 million decline in the earlier week.

The covid-19 pandemic remains one of the top concerns for markets, with total global infections surpassing 178.6 million.

Other Markets: European trading indices closed higher on Monday, with the FTSE 100, German DAX 30, French 40 and STOXX Europe 600 up by 0.64%, 1%, 0.51% and 0.70%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

UK’s public sector net borrowing and CBI industrial trends orders, South Africa’s leading business cycle indicator, Turkey's consumer confidence indicator, Italy's industrial sales, Brazil's central bank Copom meeting minutes, America’s Redbook index and Richmond Fed manufacturing index, Eurozone’s consumer confidence indicator, as well as Argentina’s current account.