Last week saw downside volatility in stocks as the incredible rally of the last few months was hit by the uncertainty surrounding the implications of a second wave of COVID-19. After weeks of a stock rally fueled by unprecedented monetary and fiscal stimulus, which drove the S&P 500 Index back to unchanged for the year, the potential for a slower reopening process impacted sentiment.
The downturn in stocks also came during a week that saw the Federal Reserve (Fed) pledge to keep interest rates near zero for the next few years. The Fed’s pessimistic outlook on the economy and employment as a result of the pandemic helped push Treasury bond yields lower by 25 basis points from the highs in yield seen after the May employment report.
Expect more volatility as the momentum trend has been broken for now and the overbought market conditions could lead to sharp sell-offs.
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