Need to Know: The U.S. stock market rally has legs – investors should stay in, strategist says

Need to Know

Runners make their way through a Brooklyn neighborhood during the New York City Marathon.


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U.S. stocks fell on Monday after two consecutive weeks of gains. The three major indexes have rallied on the prospect of the U.S. economy gradually reopening, despite the country’s death toll continuing to rise. The figure now stands at more than 40,000. The Dow Jones Industrial Average
DJIA,
-2.44%

fell 592 points – 2.4% – on Monday.

The coronavirus pandemic put further strain on oil demand as U.S. oil prices plunged to their lowest level since 1999. It is also a big week for U.S. earnings and one that will give investors a further glimpse into the impact of coronavirus — S&P 500 earnings are set for their worst quarter since 2009.

However, in our call of the day, Nordea Asset Management’s Sébastien Galy said the rally had legs.

“Equity markets seem to be rallying against common decency. This should be seen as a sign of the Fed’s and to a lesser extent the government’s success, redistributing wealth is a political decision,” the senior macro strategist said in a note.

“Short selling reaching new highs on the S&P 500 (as reported by Wall Street Journal) is a sure sign that this rally has some legs to it,” he added. The problem would hit when the rally overshoots earlier than the economy recovers without any additional regulation on the nonfinancial sector, he said.

“You take emergency measures that are very aggressive but then make sure we don’t skip into the next one, much as [with] higher house prices you simply borrow gains from the future to today as investors are forced into the long term. That means better stay in this rally as long-term returns should be moderate,” Galy said.

The chart

This chart from UBS shows how Chinese consumers have changed their spending habits as a result of the coronavirus outbreak. About 25% of people have increased their online shopping and home online entertainment spend by more than 50%, while dining out and outdoor entertainment have taken a hit.

The tweet

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