Oh look. The stock market is rising. Will the gains hold this time?
They certainly didn’t yesterday, when a 100-plus point rise in the Dow Jones Industrial Average turned into an 879.44 point loss. In late morning on Wednesday, the Dow Jones Industrial Average had gained about 300 points, or 1.1%, while the S&P 500 had risen 1.3%, and the Nasdaq Composite had climbed 1.6%.
European stocks, though, were mainly in the red, with a 0.4% decline for the Stoxx Europe 600, but a 1.6% gain in Italy’s FTSE MIB.
The rise in the Dow appears to be more a response to the nearly 2,000-point selloff over the past two days than any news event. The coronavirus, for instance, appears to be spreading across Europe, and companies are making plans for the worst-case scenario. The question now, with the Dow well below its all-time high, is much further the market needs to fall before the damage is priced in.
That’s an impossible call given that we don’t know how much further coronavirus will spread and even how bad the disease really is. In such cases all we can do is look at what the market is saying and try to gauge when the odds favor a bounce.
We might be close to that point now, according to Ironsides Macroeconomics’ Barry Knapp. “We used the impact of the 2019 tariff tweet business confidence shocks and related stock market declines, to ‘model’ downside risk as 6-7%,” he wrote before the market opened. “We are now down 8% from the peak, given that the relationship between business confidence and the equity market, we should be close to a low.”
Maybe so. But that low might also be retested before all is said and done. Remember, the virus has yet to hit the U.S. the way it has South Korea or Europe. That could make today’s rally short-lived, according to Canaccord Genuity’s Tony Dwyer. “We have seen this before—maybe not the COVID019 virus—but an event that puts global growth into question and creates a selloff,” he explains. “The recent history of such dramatic market swoons reinforces our view that the market is likely to see a sharp oversold rally that could be relatively significant but ultimately temporary.”
Good things come to those who wait?
Write to Ben Levisohn at Ben.Levisohn@barrons.com
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February 26, 2020 at 10:52PM
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Stock Market Bounces Back From Coronavirus Selloff. Now Gains Need to Hold. - Barron's
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