Displaying items by tag: S&P 500
Some stocks seem to be rallying for no apparent reason. The only underlying logic being that they got badly beaten up during the COVID meltdown and now look cheap relative to the market’s rebound. Call it the loser’s rally. Delta, for instance, has seen some significant gains in its price despite the fact that the airline business continues to look very bleak. Delta could be considered best-of-breed though, having a much healthier balance sheet than American Airlines.
FINSUM: This is a dangerous game—when stocks that look weak rise for no apparent reason. They will fall sharply when sentiment swings back.
You may be wondering what is guiding the market right now, but in reality it is pretty simple. It is the combination of the prospect for reopening the economy, blended with the early results of vaccines that would help accelerate that process. This morning’s pre-market trading was another sign—new promising vaccine news sent S&P 500 futures up 1.5%.
FINSUM: If you want to predict the market, just pay very close attention to pharma news. Stocks in the sector have seen huge bumps because of vaccine hopes, and it is driving the whole market.
The S&P 500 hit a wall last week and saw its worst performance in a couple of months. Today notwithstanding, the market could be in for another big fall, according to Barron’s. Stocks fell 2.7% and it could be a sign that a reversal is coming. According to Nomura, “If [the S&P 500] continues to fail, you’ll hear about topping patterns, lower highs, exhaustion, and a lack of momentum”.
FINSUM: So the argument here is basically “death spiral caused by attrition”, so sort of like someone pushing a boulder up a hill and when they can’t quite get it to the top, they tumble back down. We are inclined to disagree here given that the Fed is sending such strong support signals.
After falling nearly 3% last week markets went off like a rocket ship today. From well before the main trading open, futures had been jumping on rising optimism. The big gains seemed to be centered on three critical aspects. Firstly, the Fed made a strong statement of support for how it would continue to help the economy. Secondly, there was good news about a new potential vaccine. Thirdly, despite broad reopening across the country, there has been little sign of a “second wave”.
FINSUM: As of the time of writing, today’s gain had already exceeded last week’s losses. Is it time for another big push higher?
Anybody who has paid even scant attention to the market over the last eight weeks has been shocked by what it has done. After dropping 35% from peak, the market has rallied back by almost as many percent over the course of the last 5 weeks. Now, Societe Generale says the comeback is just too fast and defies all previous bear market recoveries. Rebounds from bear market lows tend to be long slogs, with gyrations upward and downward as the market moves slowly higher. This recovery has been a lightning bolt as the market almost sprints higher. However, UBS argues that this recovery could be different, saying “This is a policy-induced downturn, and the speed and structure of the recovery could follow a different route from previous downturns”.
FINSUM: The thing that is really keeping this recovery afloat is the extraordinary monetary and fiscal stimulus that has been injected into the economy. That said, it is likely going to take a LONG time to get back to where we were on February 15th 2020, so a plateau or fall in markets does not seem unlikely.