‘Selling fatigue’ has kicked in, and the market is rallying, but the real capitulation and stock-market bottom could still lie ahead. Be careful.
U.S. Stocks closed on Monday with a rally in the Dow Jones of almost 700 points while oil prices have plunged to 17-year lows. The global coronavirus pandemic remains the number one concern of investors. The rally today caught many analysts by surprise because President Trump decided to extend the U.S. lockdown to April 30 and public health officials warning that the American death toll could be between 100,000 and 200,000 and that infections could be in the millions.
UBS strategists during their daily call held on trading days warned that “selling fatigue” may have kicked in as investors were no longer reacting as wildly to even more bad news as they have been in recent weeks.
“The elasticity of the bank’s virus market risk measure to new coronavirus cases and other bad news was falling.”
UBS strategists, led by Bhanu Baweja, said in a note to their clients on Monday…
“However, both because infection rates are likely to keep rising for some time, and also because in cash equity markets we have not yet seen a capitulation in the core positions in growth style stocks, it may be early to say a firm bottom has already been made.”
“Equities remain the most ‘pessimistic’ across asset classes (pricing global growth at 0.3%), followed by commodities (0.7%), rates, and credit markets (both 0.9%). At 3% implied growth, cyclical currencies send the most optimistic signal.”