Stock-market rally: what the experts think
● US jobs boom The bulls are officially running again – at least in America, said The Wall Street Journal. Amid growing optimism about the economic recovery, the S&P 500 this week “erased all its losses for 2020”, and the Nasdaq tech index saw its “first record close in four months”. The reason for the latest surge of investor optimism isn’t hard to divine, said James Dean in The Times: a “record-breaking jobs report” that “left economists stunned”. The general forecast had been for a loss of eight million jobs. No one had “predicted an improvement”. So when the stats showed the “largest increase ever” in US jobs in April – some 2.5 million positions were created – financial markets leapt globally. The “nonfarm payrolls figure” is seen as the “most important indicator” of the health of the world’s largest economy.
● Healthy scepticism
President Trump hailed a “rocket-ship” recovery. But “there is still a lot of headscratching going on”, Chris Rupkey of MUFG told The Times. The question many are asking is whether stock markets (noticeably more optimistic than economists since the initial March sell-off) were right all along: that the recovery will indeed be rapid, and V-shaped. What’s certain, said Michael Mackenzie in the FT, is that “whether your lens is bullish or bearish, it pays to retain a healthy sense of scepticism”. As Shamik Dhar of BNY Mellon points out, you can be optimistic about a stronger global recovery, while still believing that “equities are running ahead of the underlying macro story”. Indeed, plenty of pundits reckon the equities rally is built on shaky foundations: a combination of cheap money from central banks and the absence of investment alternatives.
● A fine balance
“The market is now set up to hope for more news that confirms the V-shaped scenario. That means there’s a lot of room for disappointment,” said John Stepek in MoneyWeek. So hold on to “safe haven” insurance assets such as gold (which has tumbled) and perhaps, for the moment, bonds (bearing in mind that a rapid recovery will make them less attractive). Balance that out with a “decent mix of stocks” and “some commodities”, and you should be well-equipped to deal with most eventualities.