Hong Kong Dollar Retaliation Threatens to End Extended Rally

Stocks are climbing and the “sideways chop” continues. After tumbling in early June, the market has been unable to pick a direction, trading neither up nor down in any deliberate manner. On Tuesday, stocks started out strong and finished lower.

Today’s trading session could follow a similar pattern. Equities flattened shortly before noon.

The Dow (-0.20%) and S&P (-0.25%) sit below moderate losses while the Nasdaq Composite (+0%) is held level by Big Tech. Unsurprisingly, FAANG (plus Microsoft) is at it again, rising infinitely into the stratosphere while less-popular stocks stagnate.

“It seems like you flip a switch when those Covid cases go up, the country takes a step back in terms of reopening the economy and all those names find high demand,” Christian Fromhertz, CEO of The Tribeca Trade Group, said.

He continued, adding that “people will start to look at the more under-owned names once again,” if the coronavirus hysteria subsides.

Companies being pumped by speculators – airlines and cruise ship carriers – are enjoying some morning returns as well. Retailers, too.

The reopening-sensitive sectors have mostly risen today despite a spike of 60,000 new coronavirus cases in the U.S. on Tuesday. Several states are now considering reactivating lockdown measures as a result. Michigan Gov. Gretchen Whitmer recently said she’s open to the idea of doing so should infection totals increase.

And once again, investors can’t seem to be bothered by Covid-19 statistics or even another potential lockdown. The market won’t truly fall into a larger correction until FAANG is affected.

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That may eventually happen, however, if the current infection trends persist.

“The COVID numbers in the US remain troubling and this is beginning to create economic headwinds,” warned Adam Crisafulli, founder of Vital Knowledge.

Meanwhile, White House economic advisor Larry Kudlow says that the “V-shaped” recovery is back on track.

“No one’s denied we’ve had a huge jump in cases in certain hot spots,” Kudlow said.

“There’s a lot of scenarios here. We really don’t have any real experience in econometrics modeling for this type of thing. Because so much is generated by the virus. At the moment, we’ve created 8 million new jobs the last couple of months. […] Virtually every piece of data shows a V-shaped recovery.”

Also applying pressure to the market is a new report from Bloomberg, which suggests White House advisers are telling President Trump to target the Hong Kong dollar’s peg to the U.S. dollar. It would be a retaliatory move against China for its recent political actions in the region. To achieve this goal, the U.S. would likely limit the ability for Hong Kong banks to buy U.S. dollars, decoupling the currencies.

It remains to be seen whether this strategy is actually employed. And, whether China will further escalate tensions with another strategic maneuver.

Either way, though, it certainly won’t help bulls feel secure in the current investing climate. Uncertainty is rising, putting a damper on sentiment.

Which, combined with the Fed’s unprecedented stimulus, should only push precious metals higher.

All while the rest of the market figures out if another drop could be “the big one.”

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