By Callum Keown
As coronavirus cases surge “selling fatigue” may have set in among investors but the stock-market bottom could be yet come, UBS strategists said.
The Dow Jones Industrial Average (DOW:DJIA) had its best week since 1938 last week, after several historically bad weeks. The index made more gains on Monday despite warnings the U.S. coronavirus death toll could be between 100,000 and 200,000 and President Trump extending social distancing measures to Apr.30.
They said investors were no longer reacting as wildly to incremental 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, the bank’s strategist said in a note.
“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,” strategists, led by Bhanu Baweja, said in a note.
In contrast, volatility in equities, rates and foreign exchange has likely hit the peak and was now “slowly coming off extreme levels,” they said. The strategists added it was time to consider getting long risk in the options space.
“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,” they said.