Bassanese Bites: Head Fake ? – March 30 2020

The key question folks: have we seen the low or was last week a bear market rally?  Despite horrible US economic data and an acceleration in their  COVID-19 cases, the US S&P 500 saw fit to stage it’s strongest three-day rally since 1931 – after dropping 34% from its peak.  Indeed, with the US market at one point up 20% from its low, some were already heralding a new bull market, after what has been the fastest descent into a bear market in history.  2020 is certainly one for the record books!

It’s easy to find reasons for why the market bounced.  For starters, the market was deeply oversold on a range of technical indicators.  Second, the Fed’s provision of $US funding to global markets appears to have lessened some stresses, as evident by an easing back in the $US, US bond yields and gold a few days before the bottom in equity markets.  Third, although US lock downs intensified, markets took a view that this might help contain the virus sooner rather than later –  encouraged by Trump’s hope that restrictions could be lifted by Easter (April 12 to be exact).  Last but not least, extended negotiations over US fiscal stimulus – which was finally concluded on Friday – allowed the market to “buy the rumour” for a few more days than would have otherwise been the case.

Heading into the new week, harsher realities may again confront the market.  As in Australia, while US fiscal stimulus is extensive, it hasn’t changed most economist expectations for a very deep US recession at least over the June quarter – this week Wall Street may now “sell the fact” regarding Washington’s efforts.  With US virus cases building in other States (apparently partly due to New Yorkers fleeing their own war zone), hopes for a speedy end to US restrictions may also be quashed.

Click to read the Full Report