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Reasons Why Markets Continue to Rise Despite Growing Number of Coronavirus Cases

UTC by Bhushan Akolkar · 3 min read
Reasons Why Markets Continue to Rise Despite Growing Number of Coronavirus Cases
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Well, the jobless figures and the economic outlook seem pretty bleak for the coming few quarters amid coronavirus, here is how the market is reacting to the situation. Is any further damage already priced-in?

On Thursday, March 26, Dow Jones surged 6.38% closing the day 1351 points higher at 22,552 levels. This has been the index’s biggest 3-day surge since 1931. Just in the last three days, Dow has added nearly 4000 points to its rally.

However, it was all surprising to see the markets rally despite the economy figures being worrisome. For the week ending March 21, the figure of unemployed jobless Americans just shot to a massive 3.3 million. With this, America has set a new record surpassing the 1982 recession figures as per Thursday’s report.

On the other hand, the COVID-19 cases have been on a steep rise in the U.S. On Thursday, the U.S. has reported a jump of 17,000 more positive cases surpassing China in the total tally. The global cases have doubled over the last week reaching over 526,000. New York, the most infected state in the U.S. has registered over 365 deaths.

So when things are already getting disturbing, why was the market making a rally upwards? With the Dow collapsing 40% over the last month, analysts think that any more bad news won’t make any further negative impact. The popular thinking is that bear market die on bad news as the market always looks ahead. After pricing all the negative news in, the selling stops. Randy Frederick, vice president of trading and derivatives at Charles Schwab, said:

“The markets and the economy don’t run in parallel. The market’s running way ahead of the economy. The markets don’t care about what’s happening today, the market cares about what’s happening six months from now.”

Steep Fall in Economy May Come

The COVID-19 pandemic has caused major disruptions in global trade and commerce with major cities under lockdown. Economists are already weighing down its impact and saying that we could see a steep fall in the economy over the next two quarters.

The unemployment rate can spike further and nearly 10 million people will go out of work. While the data will continue to remain bad for a couple of months, we can expect a pronounced recovery ahead. On Thursday, Federal Reserve Chairman Jerome Powell said that there could be a good rebound in subsequent quarters. He further added that the Fed is all prepared to take any measures to make sure that the economic recovery is as vigorous as possible.

Earlier this week, the Fed took some unprecedented decision of pumping a whopping $300 billion in corporate bonds. With this, the Fed is taking efforts to curb any further job losses.

“I think the market has reached a bottom. I think all the bad news we’re going to hear about the virus over the next four to six weeks, all the terrible economic data we’re going to see over the next four to six months, that has been priced in. The next question for the market is what happens after … we get to the fall and the economy starts to recover? Is it a ‘V’ bottom recovery, or is it something that’s going to take a lot more time? Unfortunately, I’m in the latter camp,” explained Peter Boockvar, chief investment officer at Bleakley Advisory Group.

Business News, Market News, News
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