By Mark DeCambre, MarketWatch
Investors are seeing light at the end of the tunnel after a brutal period. But is it an oncoming train?
It’s a question many investors are weighing as the market attempts a powerful rebound from its late-March lows on the back of signs that the spread of the coronavirus-borne disease COVID-19 could be slowing here and elsewhere in the world.
Some of the hardest-hit places in the U.S., where a quarter of all confirmed global cases have now been reported, are starting to show welcome signs of a reduction in infections, including New York state, which has emerged as the epicenter of the viral outbreak that began in Wuhan, China in December.
New York Gov. Andrew Cuomo, speaking during a news conference on Tuesday, said that the rate of hospitalizations is plateauing, even as he reported the biggest one-day rise in deaths.
Italy and Spain also have reported a slowdown in the outbreak following strict social-distancing and lockdown measures, and Austria and Denmark are setting the stage for a return to some semblance of normalcy. Wuhan, China, where the disease was first identified, reported no new deaths for the first time since January.
“We are finally seeing U.S. COVID-19 new case numbers responding to social distancing — certainly in New York state but also elsewhere,” wrote analysts at BofA Global Research in a note.
On top of that, central banks and governments across the globe are throwing out what amounts to trillions of dollars to help stanch the economic damage resulting from efforts to mitigate infections and treat those sickened by the illness derived from the novel strain of coronavirus.
Those factors have given a major boost to equities and momentarily deflated some of the rabid appetite for assets considered havens like the 10-year Treasury notes /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -5.15% . The 10-year yields about 0.78%, compared with 0.587% on Friday. Bond prices fall as yields rise.
And stocks, attempted strong gains Tuesday before ending lower, with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.07% giving up a more than 930-point rally, after a dramatic surge on Monday saw the blue-chip index, along with the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.48% and the Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +1.29% , close more than 7% higher.
As of Tuesday, the Dow is already up 7.6% on the week (which is set to be abbreviated by a Good Friday market pause), the S&P 500 is 6.9% higher, and the Nasdaq is on pace for a gain of 7%. From recent lows on March 23, the Dow has risen about 19.4%, the S&P 500 is up roughly 17% and the Nasdaq has gained nearly 14.3%.
It has been an extraordinary move higher, and the rate of infections and the latest death tolls appear set to continue catalyzing market moves in the near term. Why? Because those data will signal when the economy, which has been mostly in shutdown mode since the pandemic took hold, could possibly resume.
The swing higher for stocks has created a degree of discord among experts about how this movement will ultimately play out for markets in the near term as investors process likely poor economic data and weak corporate earnings in the days ahead.
Some argue that the bottom has been put in, but others are worried that the market could retest its March lows.
The team at Wolfe Research, including chief investment strategist Chris Senyek, says it has remained bearish on the market, given the weak data outlook. The disease’s path, the team wrote in a Tuesday report, is an uncertain one, “and our sense [is] that incoming economic data [and first-quarter] earnings season will be very disappointing.”