Investors Remain Upbeat As Economic Uncertainty Persists

The stock market finished significantly higher today, erasing Friday’s late-session plunge, with the Nasdaq and the tech sector giving a boost to the broader market, despite the grim U.S. COVID-19 situation. The Dow was up 691 or 3.2%, to 22,327, the Nasdaq gained 272, or 3.6%, to 7,774, while the S&P 500 rose by 85, or 3.4%, to 2,627. The number of advancing issues roughly matched the number of decliners on the NYSE, where volume was moderate.

Traders said that while the performance of the large-cap benchmarks was commendable today, small-caps were notably weaker, which might spell trouble for bulls. As one trader explained, “Small-caps and cyclical issues clearly lagged the broader market today, as the ‘stimulus-euphoria’ eroded, so the oversold rally could face a real test in the coming days, since the length of the global lockdowns remains a mystery.”

The mixed virus-related news flow led to a two-faced session in financial markets, with only equities showing continued stability. Even though the key sectors all closed today’s session in the green, Treasury yields finished lower across the curve, while growth-sensitive commodities, such as crude oil and copper, lost ground. While energy prices are also under pressure due to Saudi Arabia’s price war, copper’s weakness confirms the continued economic uncertainty, even though the gradually improving European situation boosted investor sentiment today.

From a technical perspective, stocks have not made much progress since last week’s historic three-day rally, with the major indices all finishing today’s session just above their highs from Wednesday. Then again, most of the stocks are also trading well above their lows, so it’s also too early to conclude that the bear market rally is over. The Volatility Index (VIX) has been closely tracking the major indices throughout the bounce, and without a meaningful decline in the “fear-gauge,” the rally remains vulnerable, especially given today’s “under-the-hood” weakness.

According to several Fed studies, the unemployment rate in the U.S. might top 30% in the wake of the COVID-19 crisis. Although most analysts agree that the recovery will be swift, it would still be a huge hit to the job market, especially compared to the near-record-low level of unemployment that we became accustomed to in recent years. The March government jobs report will be out on Friday, but we could get an idea about the speed of the deterioration on Wednesday, when the ADP payrolls number will be released. Given the unprecedented dynamics in the U.S. economy, volatility could increase again on Wall Street in the latter half of the week.

While we will have a busy day of domestic economic releases, two key Chinese indicators will likely have the most significant impact on financial markets. The manufacturing and non-manufacturing PMIs both hit record lows one month ago, but since the country successfully stopped the outbreak, analysts expect a strong rebound in the forward-looking measures. As for the U.S., the Chicago PMI and the CB consumer confidence number will be in focus, and both indicators are expected to fall substantially due to the pandemic.

As always, have a great evening, stay calm, stay home, stay healthy, do your part to flatten the curve and stay tuned!!!

Joe