Investors wary of market rally as second wave fears worsen
US FEDERAL RESERVE PAINTING A RATHER GLOOMY PICTURE HAS NOT HELPED
With global markets still rallying, investors are now increasingly becoming unimpressed as the worldwide pandemic continues to drag on and losses from short selloff spells accumulate.
With a rise beyond 20 per cent so far, Wall Street’s benchmark major S&P 500 is en route to its best quarter in more than two decades. While the index usually sets out a trend for markets elsewhere to follow, with global indices tracking gains closely behind, this time it is slightly different.
Don’t blame it on macro
The S&P 500, being an index that generally outperforms the other markets, was overtaken by other markets — notably Germany’s DAX (up 24 per cent) or Brazil’s Bovespa (up 32 per cent). Meanwhile, the Nasdaq 100 benchmark has broken, for the first time ever, the 10,000-point barrier and is now up a 29 per cent in the quarter to date.
“In such virtually unprecedented context, the investment community should be nothing short of ecstatic; but it is not. Quite the contrary, it could be that it has never been gloomier. But why?” says Stéphane Barbier de la Serre, macro strategist at Makor Capital Markets.
“The blame sure can’t be put on global macro, which has been just constantly above expectations, even the most optimistic ones recently. Of course, after the March-April mayhem, there is certainly some kind of rubber effect at play right. But, still, data has remained very supportive.”
Positive macro developments include better-than-expected manufacturing data coming out of the UK, US, European Union, France, India, Turkey, Brazil and UAE in June, and retail sales bouncing back in Sweden, Australia and Italy, with business and consumer confidence returning to pre-Covid levels for most.
However, a growing threat being faced by a lot of these countries is a renewed surge in coronavirus infections. Moreover, with the US Federal Reserve earlier painting a rather gloomy picture of prospects of the world’s largest economy, job cuts still rampant, and a definite cure nowhere in sight, there is still cause for concern among investors.