Stocks climbed across the board on Monday, at least temporarily reversing the losses the market experienced last week.
The Dow Jones Industrial Average gained 1,627 points to close 7% higher, following a 7% gain for the S&P 500 and a 7.3% gain for the Nasdaq.
Coming off a week that saw the Dow lose ground for the third time in a month, Monday’s market rally was due to positive news in the fight to contain the coronavirus pandemic.
Stocks and Coronavirus Peak
Newly reported cases fell to 28,200 on Sunday. This reversed a trend that saw 30,000 new cases on Thursday, 32,100 on Friday and 33,260 on Saturday according to the latest data from Johns Hopkins.
While it is far too early to tell if the number of new cases has peaked, the market took the decline in new cases on Sunday as an indication that things could get back to normal much sooner than even the most optimistic predictions.
New York State reported the first daily decline in coronavirus-related deaths, with 594 new coronavirus deaths on Sunday after a reported 630 on Saturday.
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“Incoming data suggests NY state might peak sooner than (Governor) Cuomo’s optimistic case,” said Tom Lee, head of research at Fundstrat. “With better visibility on the healthcare crisis in the US, particularly, on a potential to model a national peak, we believe buyers are now taking control.”
Billionaire Bill Ackman, who famously bet the coronavirus outbreak would tank the stock market and turned $27 million into $2.6 billion, has now turned bullish on stocks.
“I am beginning to get optimistic,” said Pershing Square’s Bill Ackman in a tweet on Sunday. “Cases appear to be peaking in NY. Almost the entire country is in shutdown.”
Peter Boockvar, chief investment officer at Bleakley Advisory Group added “It seems that each day that passes we seem to be getting to a better place on containment. It’s still a long road ahead, but some of the more dangerous places seem to be getting some control of it.”
Doubt Still Remains
Despite the growing optimism, many investors believe there’s still plenty of trouble to come for the markets.
Citigroup’s chief global equity strategist Robert Buckland says corporate earnings could fall by 50% in 2020 due to the coronavirus pandemic. He also mentioned that stock prices should drop an equal amount to reflect the expected decrease in profits.
“Typically, stock markets fall the same as EPS in a recession, but with a lead/lag relationship. With global equities currently down around 30%, we are not convinced they are pricing in the likely EPS collapse.”
Matt Maley, chief market strategist at Miller Tabak, believes another significant drawdown is in the cards.
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“This is more a bear market trap. I just think we’ve had a first period of liquidation. But I think we could have more of it,” he told Yahoo Finance.
“We’re in a de-risking process and now we have to have the companies, which have loaded up to the gills in terms of debt over the last 12 years. As they de-risk and deleverage themselves, that is going to keep the economy from picking back up the way it did following the 2018 deep correction” he added.
For investors who do not worry about another significant decline, Maley does have some advice.
“With the market already down as much as it is, you can start dipping your toe back in. You just want to be able to go into the the high-quality companies with great management … that have great balance sheets.”