S&P 500: Winter of discontent without steady economic recovery or Fed-put theme

The S&P 500 index is heading into September on a very solid footing having added half of this month's gains (6.6%) in just the past week, ending up 0.67% on Friday bringing the index to be 3.3% higher for the week. Themes for the week ahead include critical US economic performance updates, domestic politics, the Fed put and the race for a COVID-19 vaccine, FXStreet’s Ross J. Burland reports.

Key quotes

“We can definitely pin the coronavirus below the uncertainty tab, but with it comes opportunities which have been carrying Wall Street through the crisis. It is true, that the giants such as Apple, have been hugely compensating for the worst-performing sectors and without Apple, the S&P would be up only 4.1% on the month, not 6.8%. However, the small-cap Russell 2000 is also up about 6% for August and high-yield corporate funds are outperforming all other bond market classes which are indicating that the market is definitely not presuming an imminent economic meltdown.”

“Hopes of a vaccine and a new lower for longer framework at the Federal Reserve are keeping the cogs turning. For the stock market to continue higher from this point on, it may not be down to the tech giants or the Fed, as this is becoming a little old by now. Stock markets thrive on momentum building catalysts and tend to burn out when the story comes to fruition. This is otherwise known as buy the news and sell the fact.”

“Until a vaccine, the consumer and businesses are going to remain nervous, so until that time, it could be an even more rocky road from this point on, despite the Fed confirming the new lower for longer regime.”

“Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said this weekend to the Times newspaper in the UK ‘I would say a safe bet is at least knowing that you have a safe and effective vaccine by November, December.’ On that note, the market will be encouraged to start the week. On the other hand, should there now come a vaccine by the end of the year, the markets will be very deflated head into the New Year.”