America is attempting to reopen economies that have been shuttered across the country and Wall Street investors don’t seem to be particularly concerned about how that all shakes out in the weeks, months and years to come.
The Dow Jones Industrial Average
is up by about 33% since its late-March closing low at 18,591.93, when fears of the economic damage the coronavirus epidemic could do gripped the market, leaving the blue-chip index 18.3% down from its Feb. 12 record closing peak 29,551.42.
Looked at it another way, the Dow is headed for its best monthly gain, up 12.9%, since October of 2002; the S&P 500 is on pace for its sharpest monthly rally, up 14.1%, since December of 1991; the Nasdaq is on track for its best monthly return, a gain of 15.8%, since April 2009; and the small-capitalization Russell 2000 index
is headed for its best monthly advance since October 2011, with a rise of 18.8%, according to Dow Jones Market Data, as of Tuesday.
Are investors being too dismissive of the challenges of restarting economies that have been rocked by the pandemic that has infected more than 3 million people world-wide and killed 212,000, according to data compiled by Johns Hopkins University?
Is it a case of fear of missing out, or FOMO, taking shape?
The Wall Street-appointed Bond King, Jeff Gundlach, on Monday said that he thinks that a retest of the recent lows is plausible.
Here’s how some market participants are thinking about current investment prospects:
‘Our sense is that the liquidity-driven ‘melt-up’ could persist over the near term. Ultimately, however, extremely weak fundamentals should matter. Along this vein, we expect the state reopening process to be much slower than what’s currently baked into stock prices.’
Market participants have attributed much of the recent rally to monetary stimulus and credit guarantees by the Federal Reserve as well as the European Central Bank. The Fed, which has unleashed a barrage of stimulus measures to dampen the economic harm from deadly infection, will release its most recent policy statement on Wednesday. The Fed’s efforts have ballooned its balance sheet to 6.6 trillion, adding 2.2 trillion over the past few weeks as the viral outbreak took hold.
Meanwhile, the ECB will update its policy plans on Thursday.
“The near-term liquidity-driven ‘melt-up’ could persist given that the Fed & ECB are likely to sound equally dovish later this week,” said Wolfe Research analysts including Chris Senyek, Chip Miller and Adam Calingasan, in a Tuesday research report.
“Our sense is that the liquidity-driven ‘melt-up’ could persist over the near term. Ultimately, however, extremely weak fundamentals should matter. Along this vein, we expect the state reopening process to be much slower than what’s currently baked into stock prices.”
‘Literally every single person alive knows how bad earnings / economic data is so that doesn’t “surprise” the market at all. IF the duration of this is shorter than we initially thought that is another reason for the rally.’
Michael Antonelli, market strategist at Robert W. Baird & Co., says weakness in economic reports — presumably the jobless-claims figures that showed that some 26 million Americans are now unemployed since February — are being shaken off because they were widely accepted due to the stay-at-home procedures in place to limit the spread of the contagion.
“The market cares more about the duration” of this event than the depth, Antonelli told MarketWatch.
Antonelli also said that the megacap companies, which have helped to lead the market higher from its highs, including Facebook
and Google-parent Alphabet
will have to be sold more decisively to drag the stock market to fresh lows.
“The biggest stocks in the S&P500 are a huge weight now and they are all the big tech names, he said. “In order for the market to head lower people will have to start selling the AAPL, MSFT, FB, GOOGL sector because its such a dominant factor now,” the Baird strategist said.
‘While we are not in the clear and many risks still exist, we learn a bit more about our opponent each and every day. As a result, we can better plot our response to it. That is likely being reflected in rising equity prices.’
Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co., told MarketWatch that the market has staged a cautious ascent despite the risks because it is learning more about the virus.
“While we are not in the clear and many risks still exist,” he said, “we learn a bit more about our opponent each and every day.”
“As a result, we can better plot our response to it. That is likely being reflected in rising equity prices,” Schutte explained.
“For example, cyclical sectors and asset classes have risen over the last few days which shows that the market is anticipating that relatively better economic data may be coming,” he said.
‘There might be a little FOMO in the market right now due to the thought of economies starting to open up again and a resumption of business activity across various U.S. states.’
Brian Price, head of investment management at Commonwealth Financial Network, suggests that it won’t be smooth sailing for markets from here, given the lack of clear guidance from companies about the future in the aftermath of COVID-19 and increasingly poor economic results.
“Currently, there seems to be a bit of a dichotomy in the reporting of company earnings reports for the first quarter,” he explained to MarketWatch.
“Results for the current quarter were not as bad as some analysts had predicted, which is positive, but the fact that many companies are unwilling to offer guidance for the rest of the year is a negative in my opinion,” he said.
“There might be a little FOMO in the market right now due to the thought of economies starting to open up again and a resumption of business activity across various U.S. states,” Price told MarketWatch in emailed remarks.
“The market appears to be expecting a V-shaped recovery over the past couple of weeks but if the economic data does not validate that assumption then there is a risk that equities will consolidate from these levels,” the Commonwealth Financial manager said.
‘What happens after that is the real question—we will either get significant follow through or a period of activity, but activity which is much lower than what is needed to sustain the rise in prices. I hope for the former, but am planning for the latter just in case.’
Jamie Cox, managing partner at Harris Financial Group, says the durability of recent gains will hinge on the success of the reopening of the economy.
“What happens after that is the real question—we will either get significant follow through or a period of activity, but activity which is much lower than what is needed to sustain the rise in prices. I hope for the former, but am planning for the latter just in case,” told MarketWatch via email.