Are We Seeing a Sucker’s Rally?

Brian Sozzi Yahoo Finance Editor at large warns that there’s a sucker’s rally on Wall Street taking place. Because Wall Street’s powerful high-speed trading computers are completely mentally detached from the harsh realities breaking out on Main Street during the coronavirus pandemic. So in short, consider fading last week’s rip in equities.

JPMorgan Says the Market Rout Is Probably Past Its Worst Now while Goldman Sachs Group Inc.’s David Kostin reiterated on Friday to his firm’s clients that he expects the market to turn lower in coming weeks. Kostin cites for a rally to take place, we need to see a slowing of the viral spread, evidence that fiscal and monetary policy stimulus is working, and a bottoming in investor positioning and flows.

Gavekal Research Ltd.’s Anatole Kaletsky told his firm’s clients it’s too early to buy equities. Pointing out reasons for concern including “surprisingly complacent” investor sentiment and historical data showing bear markets rarely end on a single massive sell-off without retesting the bottom.

Despite the sharp sell-off in stocks into the close on Friday, Brian Sozzi says the consensus among his sources on Wall Street is that the bottom in the market may have arrived. Yes, Sozzi says the bottom talk has started after just three strong sessions for stocks.

Sozzi points out...

“It’s amazing how investing discipline gets tossed in the trash when you see people making quick bucks in beat-up coronavirus fear names such as Norwegian Cruise Line and Delta. Or, your portfolio manager friend, one office building over, is winning on a relative basis by riding long-time big-cap tech favorites Microsoft and Apple (which are outperforming once more).”

Sozzi quotes Frost Investment Advisors Tom Stringfellow on Yahoo Finance’s The First Trade as saying…

 “You can call it a sucker’s rally, a relief rally.”

Sozzi quotes Evercore ISI strategist Dennis DeBusschere says…

“The majority of PMs (portfolio managers) believe last week’s rally will fade now that the U.S. stimulus package is the law and deeply negative economic numbers are ahead. Until investors are confident peak Covid-19 cases are near, and there is more clarity on when the economy will reopen, front-month implied volatility will remain elevated, constraining valuations.”

Sozzi points out …

“As Democratic strategist James Carville famously said, it’s the economy stupid. And when it comes to the coronavirus pandemic, the yawning number of bulls is forgetting the human toll — from financial to mental — on American households across the country.”

With unemployment claims last week surging to over 3 million and set to soar with giant leaps of as high as several hundred thousand per week and predictions of 17% unemployment, how is the economy going to back up a rally on Wall Street.  

Sozzi concludes…

“The economy is going to put up some shockingly bad headline numbers in April and May, which will probably be the driver of lower stock prices. A few economists I have talked with suggest the April employment report could show way more than a million in headline job losses. Yes, you read that correctly — keep in mind the worst employment report during the Great Recession came in March 2009 with a decline of about 800,000.