This week witnessed a flurry of corporate earnings and positive surprises. Tech giants blew away expectations along with other consumer related stocks publishing encouraging numbers. China-US tensions remained in the back of many investors' minds this week without any escalation. Stimulus negotiations in Washington were combative, but both sides know a deal must be reached soon. Congress goes on vacation the second half of August, so look for a new stimulus deal to materialize any day. The big losers for the week were European stocks and the US dollar. The dollar is setting up a strong bounce in August, so anyone short should take note. Gold flirted with the $2,000 level in part due to safe haven flows, but here again we saw hedge funds reduce positions as they sold into the rise and commercial shorts kept steady pressure with their enormous short positions. A sustained breakout above $2,000 does not seem likely yet. The damage from the Covid crisis came home to roost this week with the largest GDP drop in US history of 32%. The bright spot in the data was that manufacturing and housing showed stability as well as durable good orders. The main trouble was stalled jobs numbers which is likely to put pressure on congress to get their new stimulus checks out asap. From a technical viewpoint the DOW, SPX, and NDX, all closed above their 50 and 200 daily moving averages - highly bullish. Next week, sentiment, manufacturing, and payroll data will dominate the calendar. With the $600 per week unemployment benefit set to expire, expect a lot of pressure to be placed on Washington to avoid a large land mine to the consumer economy.
In closing, we are four months from the US elections, 80 trading days, and investors should expect the start of incredible volatility in the markets with large back and forth swings based on a lot of fear and headline risk. However, with great volatility comes great trading opportunity.
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