Thursday's Market vs. Economy Dilemma: Gold, Silver, Stocks & Bonds

There is still much economic uncertainty facing the economy and the stock market. This uncertainty also pertains to bonds, as well as the recent trading in gold and silver. The tech-heavy NASDAQ had already seen post-panic all-time highs, but the S&P 500 on Wednesday challenged all-time highs from February after closing up 1.4% (over 46 points) at 3,380.35 on Wednesday. The Dow and its antiquated price-weighted index ranking rose nearly 290 points to close at $27,976 on Wednesday, but that is still about 1,600 points from its February all-time high.

As for those stimulus and COVID-19 rescue fund talks, the latest headlines indicated that Democrats and Republicans are miles apart. Still, the markets believe that a deal will be reached to avoid the executive actions from the weekend, and the markets are continuing to trade as though one of the COVID-19 vaccines and/or treatments will be readily available and will be approved.

Does it feel odd that the stock market is already back to challenging all-time highs while we are deep in a recession and the panic-selling lows were just in March? It should.

While technology and the stay-at-home and work-from-home themes have been dominating, there are still some sectors and stocks seeing rotation that is unusually strong. The Tesla Inc. (NASDAQ: TSLA) 5-for-1 stock split allowed Elon Musk’s stock to close up 13% at $1,554.76, still down almost 250 points from its recent all-time high. Tesla’s market cap is roughly $290 billion.

While certain areas in the stock market are seeing continued buying interest as money rotates into them, the rise in Treasury yields has been considerable even if rates remain drastically low by any historic standards. The 10-year Treasury yield was 0.67% late on Wednesday, up from 0.575% just 2 days earlier and up 15 basis points versus August 4. The yield on the 30-year Treasury was last seen at 1.365%, up 12 basis points from 2 days ago and up 17 basis points from August 4.

After Tuesday’s plunge in precious metals prices gold ended up the day about 0.1% close to $1950 per ounce. Silver had tried to recapture part of it’s double digit losses from the day before, but silver close down 0.3% at $25.98 in late-day trading. That was after 4.5% losses in gold and 11% losses and silver on Tuesday.

One of the issues hurting gold and silver is the rise in interest rates. As gold and silver have no dividends and do not pay any interest any increase in treasury yield, even at these ridiculously low historical rates, make bonds more attractive in a safety trade. The weakness in the dollar had also previously been an issue, however some hedge funds have said that being long other currencies against the dollar is now already a crowded trade.

Most equity sectors performed well on Wednesday, although mixed energy stocks and lower prices on bank stocks kept the S&P from a new closing high. Healthcare stocks rose along with technology despite some concerns about ecommerce growth, and many of the so-called “reopening of the economy” in retail and some travel related themes traded higher again on Wednesday — just don’t tell that to Carnival Corporation (NYSE: CCL) leading the cruise stocks lower with close to a 4% drop and Last Vegas Sands Corp. (NYSE: LVS) leading the casino stocks lower with a 3.8% drop.

Of the 30 Dow stocks, only 8 closed in the red on the day and 5 of those were down less than 1%. The Boeing Company (NYSE: BA) gave back 2.6% on Wednesday after the prior day’s weak deliveries figures also showed continued cancellations. Boeing was the worst Dow Stock. Exxon Mobil Corporation (NYSE: XOM) saw a drop of nearly 2% and Chevron Corporation (NYSE: CVX) saw a gain of more than 1.2%, breaking the sector correlation norm. There were roughly 340 of the stocks in the S&P 500 that closed higher on Wednesday.

The iShares Silver Trust (NYSEArca: SLV) managed to close up 0.4% at $23.42, but this is down from the prior high of $27.39 earlier in the week. The SPDR Gold Shares (NYSEArca: GLD) trust closed down 0.5% at $179.10, and this is now down from a high of $194.45 in recent days.

The big disappointment after the close came from Cisco Systems, Inc. (NASDAQ: CSCO). The networking and security giant managed to beat expectations but the stock slid on yet another restructuring and warning of a 9% to 11% drop in revenues in the next quarter.

With stocks now close to all-time highs, this has to be baffling to the army of the unemployed (still just above 10%) and with the GDP report for the second quarter being worse than -30%. The real rub here is that the economy is not the stock market and the stock market is not the economy. There are more than 60 members of the S&P 500 with a market cap above $100 billion, and for every small business that has suffered in the recession it often acts as a bump to solidify the larger businesses that have much stronger and larger balance sheets.

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