The week of trade for the Dow Jones ended brightly on Friday after some better than expected economic data and hopes of progress in the trade war with China. All this good work may be undone, however, as Dow futures brace for a rocky open after reports of “multiple officials” coming forward as whistleblowers regarding the Trump-Ukraine scandal.
Dow 30 futures were able to rally more than 800 points from their lows last week. As Federal Reserve easing expectations rose and President Trump’s odds of impeachment declined, stock bulls found their feet. It also helped that Friday’s jobs report was not quite as horrific as traders were bracing for. The unemployment rate declined two points to 3.5%, shielding the stock market from a large miss in hourly earnings and a weaker than anticipated non-farm payrolls figure.
All this positive progress now looks to be at risk as Dow futures traders look ahead to Monday, when Trump will face being undermined by what could be multiple whistleblowers. Another credible witness has the potential to add further insight into the infamous Ukraine call and send impeachment odds skyrocketing again.
As if this wasn’t enough to drive volatility in the stock market, Federal Reserve Chairman Jerome Powell is slated to speak on Monday. Whereas Powell’s hawkishness in the past had often been negative for the Dow Jones, his recent conciliatory tone has mixed economic optimism with caution surrounding the inflationary outlook. This has proven to be a tremendous underlying support for stocks, but even the Fed Chair may struggle to right the ship if Trump’s impeachment odds start skyrocketing again.
It is impossible to ignore the prospect of the CIA whistleblower speaking before Congress at some point. Though Trump’s thinly veiled (and not so thinly veiled) threats have complicated the process, the political circus that will inevitably ensue is unlikely to benefit the Dow. In a comment to CCN.com, Sebastien Galy P.h.D., senior macro strategist at Nordea, continues to advocate for a defensive stance amid chaos in Washington, D.C., preferring bonds and real estate to risk-on equity plays,
“The CIA witness will hit the stand, and the fireworks will start. Where it leads depends much on the performance of that person as Congressmen and women do their job. The future of the presidency, therefore, is uncertain with a low probability of enough Republican senators flipping over. The odds are though that this person will be either coached or trained, expect hence some shocks from this firework. We continue to prefer defensive positioning and a well-diversified portfolio, including, for example, covered bonds and listed infrastructure/real estate.”
Apple (APPL) has embarked on a steady uptrend over the last few days of trade. Its massive market cap and buoyant performance helped lead the charge for bulls after signs that the iPhone 11 might be a hit after all. With its close ties to China, it could be the case that Apple can continue to rise sharply if there are breakthroughs in U.S.-China negotiations.
Other trends to watch are if the U.S. dollar continues to trade more softly against the euro. Dow staples Nike and Coca-Cola particularly enjoy a weaker USD due to their multinational status.
Last modified: September 23, 2020 1:06 PM