Bassanese Bites: Breakout? – May 25 2020
It was risk on again last week in global markets as seemingly encouraging COVID-19 vaccine trials got investors excited early on, before experts started to raise questions about the significance of the results. Either way, the share price of the company in question, Moderna, popped following what was only a press release (not a peer reviewed scientific study), which was fortuitous given it then announced it would raise more capital!
More broadly, the central narrative of ‘economic re-opening’ remains in place, with the fear of stock market overvaluation, potential second waves and/or only a sluggish economic recovery taking a back seat to hope and optimism. Effectively, Wall Street is continuing to price in a V-shaped economic recovery until either the data or pesky virus suggests otherwise. As I indicated here in previous weeks, in the case of the U.S., such doubts could still be weeks or even months away – as we’re likely to get at least an initial ‘pop’ rebound in plummeting retail sales, confidence and manufacturing indices as some of the shackles come of the economy. Second wave risks also remain, but seem a greater threat in the U.S. winter.
The U.S. S&P 500 rose 3.2% last week to 2,955 – or just above recent highs of 2,930-2,940 – suggesting the market could finally be breaking out to the topside of its recent range. Expect more excited chatter if the breakthrough is confirmed this week and prices push above the 200-day moving average. I’m still dubious of this rally, but concede the news flow may stay with the V-shapers for now.