Market Overview

15 June 2020

Markets Are Depending on Largest Funds and Banks’ Reaction

European equity markets opened sharply lower on Monday following the continuous powerful correction below last week's lows on futures for the US composite indexes S&P500 and Nasdaq100. In addition to timely stretched forecasts by the US Federal Reserve (Fed) on the slow recovery until 2022, today news wires are quoting some fresh spikes in new infection cases and hospitalisations, which are sweeping Florida and Texas. Some other US states like Alaska, Arizona, Arkansas, North Carolina, Oklahoma, South Carolina and even California all had record numbers of new cases over the past three days, according to Reuters calculations. In Louisiana, which had been one of the earlier virus hot spots, new cases were again on the rise with over 1,200 - the most there since May 21. 

This data can be easily explained not only by the increased number of human contacts as the economy re-opens, but also by the number of new tests, which has also increased in recent weeks. Many of these states are also seeing record hospitalisations - a metric not affected by increased testing. Arkansas, North Carolina, Texas and Utah, all had a record number of patients received by hospitals on Saturday. In South Carolina, 69% to 77% of hospital beds are occupied, depending on the area.

But, even with this in mind, the surge in national statistics so far lasted only one day Friday, June 12, with 27,221 thousand cases, while on Sunday, June 14, the number of identified carriers of the virus returned to the average of the previous days and amounted to 20,004 cases. No noticeable spikes were seen in New York City, the numbers went down in New Jersey and Texas. In California the number of new cases fell again over the weekend. But the local peak of 2,625 cases on June 13 in Florida actually took place, which is much more than the April peak of 1,413 cases. Another 1,972 cases were registered there on Sunday, which gave rise to numerous talks and articles about possible dangers of a second wave of the coronavirus. Many state health officials partly attribute the increase to gatherings over the Memorial Day holiday weekend in late May.

China reported a new virus source in one warehouse at Beijing’s Xinfadi wholesale food market over the weekend, prompting its closure as well as the locking down of nearby housing districts, but no information on any significant number of cases came from Beijing. Last week Ashish Jha, the head of Harvard’s Global Health Institute, also seemed to spook many investors. He told CNN in an interview on Wednesday evening that without drastic action, “even if we don’t have increasing cases, even if we keep things flat, it’s reasonable to expect that we’re going to hit 200,000 deaths [in the United States] sometime during the month of September... and that’s just through September.. the pandemic won’t be over in September”. That was a rather disturbing statement. Although, the statement was made without strong public fundamental justification , but taking into account about 118,000 victims of the virus in the United States at the moment, this is one of the possible scenarios.

All this was accompanied by an interview of the US Treasury Secretary Steve Mnuchin with CNBC TV channel, which prompted the markets' fast drop on Thursday with his oath not to shut down the economy again. "I think we’ve learned that if you shut down the economy, you’re going to create more damage. And not just economic damage, but there are other areas. I think it was very prudent what the president did, but I think we’ve learned a lot," he added with great confidence. It is obvious that if there is a threat of a second wave, it can only force the authorities in some US states to take a pause in lifting restrictions. Most states are not considering a second shutdown as they face budget shortfalls and double-digit unemployment. Many governors even went ahead with re-opening measures before meeting federal government infection rate guidelines for doing so.

For all these reasons, whipping up hysteria around new cases may look more like an overreaction than an adequate response. It is more logical to consider the markets as simply very overheated after the weeks of advance growth, which caused an inertial overreaction in market downward correction too. Despite the fact that many individuals in the market are really scared, especially among those who are used to following fresh trends directly after news feeds, the most prudent part of the market is unlikely to forget about the economic expectations for the largest companies to reach their normal profit level by next year. All the previous spring rally from the bottom was associated with such expectations, which allowed the high-tech Nasdaq100 index to exceed the pre-crisis level, and the broad market S&P500 index to make up for 80% of the fall.

It is also highly likely that US President Donald Trump will also turn out to be right when he spoke very definitely about the forecast of Fed's Chairman Jay Powell who anticipated a "long road" ahead for US recovery. And the next day Mr Trump blasted the Federal Reserve on Twitter: "The Federal Reserve is wrong so often. I see the numbers also, and do MUCH better than they do. We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021. We will also soon have a Vaccine & Therapeutics/Cure. That’s my opinion. WATCH!" One way or another, the markets are increasingly ruled by emotions these days, and even calm investors are forced to reckon with the opinion of alarmists.

More fuel to be used for the  mass closing of market positions may be the news that one more black man, Rayshard Brooks, was shot dead by police in Atlanta, United States, as he tried to escape arrest. This incident may again contribute to nationwide tensions over race and police tactics. Brooks was the father of a young daughter who was celebrating her birthday on Saturday, his lawyers said. A video showed Brooks struggling with two officers on the ground outside a Wendy’s restaurant before breaking free and running across the parking lot with what appears to be a police taser in his hand. And then Brooks ran the length of about six cars when he turned back toward an officer and pointed what he had in his hand at the policeman, according to an official police message for the media. So, possibly Brooks aimed the taser at the pursuing officers before one of them fired his gun.

The city’s police chief, Erika Shields, already resigned on Saturday over the shooting on Friday night of 27-year-old Rayshard Brooks, which was captured on video. The police department has fired the officer who allegedly shot and killed the Afro-American man, and another officer involved in the incident was put on administrative leave. Brooks’ death followed weeks of demonstrations in major cities across the United States sparked by the death of George Floyd, after a Minneapolis police officer knelt on his neck for nearly nine minutes while detaining him. Protesters shut down a major highway in Atlanta on Saturday and burned down a Wendy’s restaurant, which was in flames for more than 45 minutes before fire crews arrived to extinguish the blaze, protected by a line of police officers, and by that time the building was reduced to charred rubble next to a gas station.

Could the prices of some shares fall really deep in this turmoil, while some investors tend to close positions or just sit out of the market, fearing both a second wave of protests and a second wave of either an epidemic or a quarantine, before the rally really resumes to the very heights? This may also depend strongly not on the so-called "crowd" but on the positions taken by the largest financial funds and banks fuelled by the Fed's money. And at what point the "sharks" will join the sale or new purchases? It may be possible to assess, for the most part, only by the traces of their actions on the charts in the following days of June. Most of us only have to be "remora fish", following these signals from the charts and on the news wires.


Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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