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Bulls are returning to US markets

After a brutal meltdown, some investors have been wading back into US stocks. But others are wary of another fall as the coronavirus spreads and its economic impact is difficult to predict.High-profile investors from BlackRock Inc to billionaire William Ackman have turned more bullish on equities in recent days, as unprecedented stimulus from the Federal Reserve, a US$2.2 trillion stimulus bill signed on Friday, and a call by US President Donald Trump to get the US back to work in weeks rather than months sparked the biggest weekly rally in the Dow Jones Industrial Average since 1938.But other investors, economists, and strategists are fearful of advising a jump back in, with no certainty about when the coronavirus will be under control.“People are trying to time the bottom and that’s indicative of an early bull market, when people have hope,” said Richard Bernstein, chief executive officer of Richard Bernstein Advisors. “The beginning of a bear market starts with complete despair, when you’ve killed hope.”Bernstein said he was a “data hawk” and was looking for a combination of “improving fundamentals” — eyeing the basic health of the asset, rather than trading patterns — and “total disbelief,” adding that in 2009 investors did not believe the bull market was real.After a slump into bear market territory, the Dow Jones Industrial Average surged over 20 percent from its recent low last week, which by one definition suggested a new bull market. Bank of America said on Friday that its Bull & Bear Indicator — a key market measure — had hit “maximum bearish,” which could imply a rebound. However, that could have been borne out by the rally seen in the past week.Ackman, whose Pershing Square LP fund gained a net 6.8 percent this month, wrote to investors last week to say he had taken off credit market hedges and invested the money in new and existing stock holdings after turning “increasingly positive.”Credit Suisse said there was merit in being an early mover rather than waiting until a market bottom “has become apparent,” while the BlackRock Investment Institute said the sell-off created value for long-term investors.While some investors believe an earlier return to work would boost the US economy, health experts say a haphazard patchwork of restrictions across states and a slow-to-mobilize White House could make the coronavirus impact worse. Cases in the United States soared past 115,000 on Saturday, the highest number in the world.“Those advocating for less strict policy options have no real idea of the full social and economic costs of a large epidemic,” said Steven Riley, Professor of Infectious Disease Dynamics at Imperial College London, Faculty of Medicine, School of Public Health, in an e-mail to Reuters.The possibility that the coronavirus outbreak fades, only to return once restrictions holding back economic activity are lifted, could cause “a severe financial crisis” said business consultancy Fathom Consulting.Edward Moya, senior market analyst at currency trading firm OANDA in New York, said the “longer we don’t have people going to work, the greater the shock on the economy” — which could mean “US markets open limit down at the start of next week.”Limit down refers to the restrictions placed on how fast markets can fall. Stocks have been highly volatile in the past few weeks, falling around 30 percent to notch a bear market then staging a stunning rally on hopes that the stimulus will help the economy.
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