Is it all over or are we in a suckers rally?

25th Mar '20 by mgallear

22 comments 1568 reads

Big rally going on in the United States could be due to the market being so technically oversold for so long. Maybe it’s the $2 trillion aid package the Senate has approved or a combination. It will drag up Europe and rest of world, despite COVID-19 spreading like wildfire.

Is it just a short-term suckers rally and then markets will tank and go down even further. President Trump is talking about calling off the quarantine after Easter. He clearly believes that he will not be reelected, if he allows the strict lockdown to continue. This will mean the virus will spread across the US unchecked and many will die. (You know how many million, without me telling you.) The Economist has said that many countries will have to lock down more than once and this will just be too expensive for their economy and world economy to take.

The other fundamental view is that as more and more people die and it spreads to more and more countries, that fear will grow and global stock markets will tank even more than before.

When we finally see the end of COVID-19 will there be a rapid market and economic recovery or will we be in the grips of a 1930s style great depression.

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Rusty2

25th Mar '20

What happens after a lockdown, I agree they can't do this long term, maybe 2-3 months at most, even now people are not complying with it.

The rally today in UK has already gone, up over 4% and now back down to -0.25% on the FTSE 100.

Nick Tull

As you say, Trump knows if he tries to lock down the US for a month or more, the economy will tank even more and he won't get re-elected. Dems know this so playing games with the bail out, so although it got waived through Trump is not getting wide Washington support. Demand side and supply side global collapse means all markets going lower I think. Once clear infection rates not subduing in UK and spiking in the US, we'll be facing another leg down. Grim times ahead.

hp01

Hard to tell if this is just a bear market rally or that's it.

Re: covid - The shutdowns are in place to flatten the curve to avoid the hospitals from getting severely overwhelmed, and to buy time to increase our hospital, respirators, and testing capacities. If we can increase our capacity over the coming weeks/months to manage another wave of cases later in the year, then it could be possible to resume economic activity once we've moved past the upcoming peak, and avoid a 2nd shutdown later in the year.

Whatever Trump says needs to be taken with a pinch of salt. There are some smart and effective governors, scientists, advisors and leaders in the US that are trying to do what is best for their citizens. Trump is not one of them.

ambrosia

spanish flu had an initial outbreak during the cold months, then during the summer dramatically declined before coming back in the autumn worst than ever

if corona follows a similar pattern the peak could be toward the end of the year

But COVID-19 does not seem to be slowing down as the temperatures rise and it increasing it's spread in hot climates although at a slower rate so far than colder climates, I'm not sure it will be the same as flu and nor are the W.H.O..

mgallear

Thanks for the intelligent discussion. It looks like this rally is already over. It seems to have been a massive dead cat bounce rather than an actual relief rally. However, I was impressed by how far things jumped but then the Fed is being extremely accommodative.

I am not sure if the markets will recover extremely rapidly or if we are going into a deep recession and an extremely bear market. Cramer on CNBC made the important point that nobody is forgiving Facebook for having a bad quarter.

I suspect most vaccines or cures will be tested out on as much of the population as possible, long before they are approved. I am not sure the NHS likes experimental drugs, though. If I need a ventilator, I am not going to complain much, if Rolls Royce just made it and it has not passed its exams to be used in a medical setting. Some drugs that might work that were developed for other conditions have already passed the human testing stage. It will only take one of these drugs to prove to be effective and stop most people dying, then the fear of the virus will go overnight.

Keep safe, everbody.

Agree the measures are designed to flatten the curve and buy time, and indeed with the fact there are those in situ trying to mitigate his stupidity (like Fauci), but I just think the haphazard and unconvincing responses from the WH will add fuel to the fire.

Gromley

Certainly nobody knows if and how much this particular coronavirus is susceptible to ambient temperature.

Even if it is I would hazard a guess that temperatures have not yet risen sufficiently to have a significant effect.

On the other-hand, whilst I would put it down to societal intervention rather than the temperature, evidence that infection is slowing down across Europe is quite strong imho.

The media seems intent on focusing on the rising death toll (which is a trailing measure) on the increase in absolute number of cases day to day (which is pretty irrelevant given that new actual infections today are not immediately measurable/measured.

Hack epidemiology once again, but given that the infection cycle is said to be in the region of 5 days I have been tracking the increase in total [reported] cases compared against the base 5 days previously. In percentage terms this is tracking downwards in most cases.

In the case of Italy this fell below a 100% increase each 5 days on the 19th of March and is now down to 58% on the data published today. Whilst I accept that is flawed calculation based on flawed data, I do believe that it is indicative of the fact that Italy is 'flattening the curve'.

At the time of writing the UK still has not published today's data (it gets later and later) but yesterdays figure was an increase of 147% on the level 5 days previously, so still 'exponential' but with a slowing trend. Changes in the testing criteria though add an extra level of doubt to the UK figures.

Personally I am increasing encouraged from a public health perspective , that the actions of many governments and populations are demonstrating we can put a cap on this. However no one really seems to have plan yet as to how and when to lift the draconian restrictions - Hubei is the canary in the coal-mine here.

We are all guessing here, but I suspect that the length of the social/economic recuperation period will give the markets more opportunities for depression yet. Plus the US seem to be stumbling towards catastrophe.

I am selectively drip feeding into some positions here, but not without the aid of a safety net.

"In the case of Italy this fell below a 100% increase each 5 days on the 19th of March and is now down to 58% on the data published today."

But how much is the fall due to the isolation they are doing in Italy, Spain and some other countries, believe Italy are now about 10 days into isolation. Then what happens when they are lifted?

Re hot climates, Coronavirus has been in some them a lot longer than in Europe but their cases are a lot lower, Malaysia is the highest of the SE Asia hot countries, with 1,796. Thailand has had cases for over 2 months now, compare that with Italy and Spain. Also these countries have taken very few measures to contain it until recently. I think there is something in the theory that it does not spread so well in hot temperatures, there was a study in China that found around 9C was the optimum temperature for the virus. The cases are mostly in colder climates, I don't have a split but it's probably 90/10 cold/hot.

Ross Johnson

26th Mar '20

The cure "shutdowns" will cause more damage than staying open. Yes, those in danger such as the over 65's and the susceptible should be quarantined . However industry should be able to operate, otherwise it will be years before our economies recover.

William K

My guess is a sucker's rally. To me this looks like the calm before the storm. Last week the FTSE100 touched 4800, yesterday it touched a 5700 - an upward swing of 19% - possibly the biggest dead cat bounce some of us will ever see. I guess some investors thought the prices too cheap to resist, but this is clearly not rational behaviour. The developed nations face 3-12 months of severely reduced productivity. The only way the governments can fund their obligations is by quantitative easing - the US is pumping $2 Trillion into their economy, which is about 10% of their gross national product. Other countries will have to do the same kind of thing. We are all heading towards the kind of inflation last seen in the late 1970s, say 20-25% per annum, or vastly increased taxation, or both. Whilst it's always unwise to call the market, probability favours a 'correction' of maybe >10% over the next couple of weeks.

The VIX rose >10% yesterday from 44 to 50 showing that levels of confidence in a sustained rise are falling.

dfs12

The economic case for avoiding shut downs and letting the economy run as normal is undisputable. Coronavirus impact on world GDP would be tiny without lockdowns.

If we allow economies to carry on with little change (without lockdowns) then one downside would be having to find increasingly novel ways to deal with the dead bodies. In Spain they are using Barcelona's biggest ice rink as a morgue. The panel vans are dropping people off like a delivery service. What happens when the ice rinks are full? Can we really call ourselves civilised if we allow ourselves to go down that route?

In my mind there is no question. Lockdowns are the only option.

Zoiberg

America has health businesses. It does not have a health service and therefore does not have the kind of infrastructure needed to deal with a pandemic. This report lays bare some of the inadequacies: https://www.bbc.co.uk/news/world-us-canada-52019509
I suspect the US is about to be overwhelmed by the virus.I hope I'm wrong.

I also worry that many countries are just on the start of their covid journey. In a few weeks time we will have many of the poorer and heavily populated countries hitting some big numbers of infection. The mortality rates are likely to be much higher. The demand for ventilators, protective equipment, tests and drugs is likely to become extreme.

intuitive6191

The FT has a useful feed for the worldwide progression of the COVID virus. As a public service this is provided free of charge (not paywalled) at the link below

https://www.ft.com/coronavirus-latest

The various graphs show better than any other resource I have seen why extreme measures are necessary to halt the spread.

I cant see any short term solution and it is quite likely that we will be going into next winter without a vaccine.

Caper4

yes indeed. I am in South Africa. Expect deaths to be in the thousands amongst the disadvantaged living in appalling conditions and many with HIV and TB.

Thanks for posting that link.

I don't know about a vaccine, some say maybe 6 months, others say 18 months.

But what will happen after the extreme measures finish?

Will see what happens in Italy and Spain, it seems to be having an effect there.

I have read China is getting going again but they are practising social distancing as much as possible, this must impact on production though.

Maybe social distancing will be the norm for a while. I think most people can live with that.

Yes it is a concern, most badly affected countries so far have decent health systems such as Italy, France and Spain but even those are struggling to cope. If it does affect countries such as India, which is now in lockdown, it could be disastrous. It is growing in hot countries but at a slower rate and most are now taking action.

garbetklb

I don't think there's much point in trying to discern anything from the numbers of people infected - testing is not widespread, no longer a priority and subject to as many adjustments as some of our "favourite" company results......

Deaths are a clearer measure and, as Gromley says, a trailing measure (? maybe 2-3 weeks after becoming sick) - although the trail is likely to get shorter as ICU beds are full and the incredibly difficult decisions on who gets ventilated, and who not, start to be needed. I suspect & fear that the daily death rate is going to increase rapidly for 2+ weeks. I struggle to see how the market here will find much positive news.

I suspect the US is in real trouble, partly because they don't have a health service, partly because of Trump's past, present & future actions. Just imagine the market reaction if Fauci / Birx were fired for disagreeing. Or, if either of them succumbed to Covid. Yes, the US has huge strength and ability - eg Liberty Ships in WW2. But itneeds, and doesn't have, leadership - or people who will stand up to Trump.

15 March Mnuchin said he didn't expect a recession! Is he incredibly stupid? Or unwilling to speak truth to power.......

I'm probably handling my investments badly - have sold about 1/3. Have a load of small caps I probably can't sell - but I also can't bring myself to sell. However, the best thing I've learned in recent years is from Paul - balance sheet strength. So I hold lots of companies with "inefficient", cash rich, balance sheets.

Enough rambling!

What is the ICU situation? I saw on the news last night that they are converting conference halls into makeshift hospitals with ventilators. One health spokesman believes they may have enough to cope.

Is it all over or are we in a suckers rally?

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Mgallear

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