The hackneyed market, so eager to put the entire blow from the pandemic behind it, is now coming to terms that a “V-shaped” recovery dominion be too rosy a scenario.
With recent spikes in coronavirus cases and fluctuations in the economic data, the market seems to be beetle a united in a range amid elevated volatility. Market analysts said investors should expect more turbulence to the fore because the economic recovery is most likely to be bumpy.
“The market was priced for a continuation of improvement and I think that’s hyperbolizing what’s going to happen,” said Brian Levitt, Invesco’s global market strategist. “We are going to have scenes of cases rising. We are going to have a very slow and uneven improvement in the jobs market.”
After soaring more than 40% from the Procession lows, the S&P 500 turned sideways in the past two weeks, trading at similar levels to early June. The market, which cast-off to turn a blind eye to disastrous news on the thinking that the economy had already bottomed, has become more vulnerable to unresponsive economic headlines as the data begins to give a read on the shape of the recovery.
Stocks came under pressure earlier this week after information showed weekly jobless claims rose more than expected last week, and the number stayed surpassing 1 million for the 13th consecutive week.
And on the virus front, California, Texas, Florida and Arizona have reported an uptick in new infections and hospitalizations amongst the reopening. Apple said Friday that it’s again closing some stores in Florida, North Carolina and Arizona due to the spears in coronavirus cases, which sparked a sell-off in the market, especially among retail stocks.
“The economy is going to exigency more help to bounce back in months to come,” said Matt Miskin, co-chief investment strategist at John Hancock Investment Managing. “For now, volatility and choppy markets remain our base case as an uneven economic recovery likely unfolds.”
‘Rolling Ws’
The summon in those popular reopening trades — airlines, cruise lines and hotels — is seemingly losing steam. Shares of American Airlines and Delta picketed their second straight weekly losses. So did Carnival, Norwegian Cruise and MGM Resorts. Those stocks were in a jiffy the high-beta leaders of the market comeback as investors bet that a successful reopening would take hold.
“Although the corny market was suggesting a V-shaped recovery, the more likely scenario is rolling Ws,” Liz Ann Sonders, chief investment strategist at Charles Schwab, averred in a note.
A similar market pattern happened during the financial crisis, pointed out by Nicholas Colas, co-founder of DataTrek Experimentation. After stocks rallied nearly 40% from the 2009 bottom, the market was range-bound for about seven weeks so the primaries could catch up, Colas noted.
From a technical perspective, Matthew Maley, chief market strategist at Miller Tabak, is be careful of if the S&P 500 can break above its recent high of 3,232 or drop below the 3,000 threshold or its 200-day on the move average of 3,018 as of Friday.
“Whichever way it breaks…should be an very important development in trying to determine how this ticklish juncture in the stock market will be resolved,” Maley said in a note.
Fed can’t prevent volatility
While the flattening virus curve played a big duty in the market rebound, it’s no denying that the Federal Reserve’s unprecedented stimulus has been a key driver in lifting stocks from the coronavirus decline. The central bank unleashed another weapon in its arsenal this week, saying it will start buying discrete corporate bonds.
As comforting as it is to have the Fed’s support, the central bank can only do so much to ease investor fears.
“The Fed can’t debar the volatility we’re seeing in stocks,” Lindsey Bell, chief investment strategist at Ally Invest, said in a note. “It choose likely take years for the economy to fully recover and there remain other uncertainties on the path ahead. As such, investors may go on to struggle with this mismatch between markets and the economy before seeing the case for new highs.”
Fed Chairman Jerome Powell prompted investors again this week in his semiannual testimony before Congress that “significant uncertainty remains nigh the timing and strength of the recovery.”
Many on Wall Street have also warned that extended policy actions including injection of trillions of cheap money would lead to problems down the road such as hyperinflation.
Week in advance calendar
Monday
8:30 a.m. Chicago Fed National Activity Index
10:00 a.m. Existing home sales
Tuesday
9:45 a.m. U.S. Flash Services PMI
9:45 a.m. U.S. Hint Manufacturing PMI
10:00 a.m. New home sales
10:00 a.m. Richmond Fed Business Activity Survey
Wednesday
7:00 a.m. Mortgage applications
12:30 p.m. Fed’s Charles Evan speaks on the Passage Business Journal webinar
3:00 p.m. Fed’s James Bullard speaks at Greater Louisville virtual event
Thursday
8:30 a.m. Jobless puts
8:30 a.m. Third estimate GDP
8:30 a.m. Durable goods
Friday
8:30 a.m. Personal income
10:00 a.m. University of Michigan Survey of Consumer
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