Stocks ignore economic calamity to push higher

1 min read

By Han Tan, Market Analyst at FXTM

Asian stocks are set to enter the weekend on the back of four consecutive days of gains, after their US counterparts extended their advances overnight. It’s taken just two weeks for the Dow Jones to go from a bear market to a bull market, at least technically, while the S&P 500 recorded its steepest 3-day climb since 1933!

Stock markets appear content to dismiss signs of the economic carnage left in the wake of the coronavirus for now, even ignoring the record high US jobless claims data which rose by over 3 million during the span of a single week. This print is the highest on record by a factor of nearly five, and up over 1000% on the week before. The delivery of economic rescue packages and unlimited quantitative easing has apparently been enough to send equities higher for the time being.

Gains in equities this week do not truly reflect market confidence that the coronavirus outbreak has peaked and that the economic turmoil is over. While the stimulus measures being rolled out around the world can mitigate the initial negative fallout from the coronavirus outbreak and help support the eventual recovery, Covid-19’s economic toll could be more severe.  It is this that would then test policymakers’ ability to push against the virus’ drag on their respective economies.

It remains doubtful whether the recent surge in global equities can be sustained. The wild price swings put an artificial gloss over valuations, with prices disconnected from the economic realities of the coronavirus impact. This rebound in stock markets may eventually prove to be a false dawn, one fueled by volatility rather than fundamentals and we feel this warrants caution and vigilance on the part of investors.


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