Date: Wed, 8th April 2020
Author: Nils Pratley
It is still considered preliminary to call the bottom for prices in the Covid-19 pandemic although several shares may have recovered.
Have we experienced the bottom for stock markets yet?
It is convincing to believe so, especially after two days of speedy action as investors have responded to the coronavirus curves in countries like, Italy, Spain and Germany.
Gains in individual stocks that had fallen the furthest, have been astonishing.
Speedy boarders could have profited a 27% return within 48 hours by buying shares in easyJet first thing on early Monday. In such a similar scenario, Rolls-Royce, the engine-maker, gained 24%, comparative to easyJet. It unveiled a self-help strategy involving additional borrowing.
Carnival, the cruise ship company that seemed forsaken and friendless at the end of last week was up 25% on Monday’s opening price and 43% on Friday’s closing level after raising fresh funding. Asos, the online fashion retailer, joined the club on Tuesday stating they are on the edge to raising more equity and debt.
The implications are probably minimal. Fear of missing the bounce in over-sold stocks although evident, would be an unwise move to draw wider morals. Both Central banks and governments have made financing conditions easier, a great achievement, However, the shape of the post-lockdown recovery remains questionable.
Although the V-shaped camp has adherents, they are shrinking in numbers. The “corrugated” thesis – brief surges and relapses – is gaining ground, which would make sense if lockdowns are rolled back and then partially re-imposed if fresh viral outbreaks occur.
Based on history, it is too early to call the bottom for share prices, according to analysts from Bank of America. They believe that it would be “unprecedented” since 1929 if the S&P 500, the main US index, “failed to re-test or even fall below” its low point on 23 March if recession arrives. Their point is that bear markets in stocks, when accompanied by recession on the ground, tend to last a while – about 11 months on average.
As most of the recessions are not brought about by pandemics, the consequences may be different this time. And yet, the current stock market still feels essentially lost without a direction.
The FTSE 100 has gained 5.3% in two days as global investors have focused on lower infection rates in various countries. Although encouraging, the unemployment rates are still terrifying and are likely to worsen. This mini-rally for share prices feels fragile.
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