There’s just one catalyst that could trigger a meaningful rally higher. Here’s what investors need to know.
There has been a lot of speculating over the last several days that the market may have bottomed as stocks rose in the last trading days of the first quarter.
Stocks have been on a volatile ride since mid-February when all three major U.S. indexes hit record highs. Since those highs, stocks are solidly in bear market territory with the S&P 500 down -25%, the Dow down -27.5%, and the Nasdaq down -23.7%, even after last week’s record surge higher.
With the first quarter of 2020 coming to a close this week, stocks have had one of their worst quarters on record as fear grows around the coronavirus pandemic.
But even when the market has reached a bottom, Bryn Mawr’s Jeffrey Mills says stocks won’t see a sustainable rally until there’s an effective treatment for COVID-19.
“We don’t know how long the economy is going to be shut down,” Mills, Bryn Mawr’s chief investment officer, said. “We don’t know how long folks will be quarantined, and I think because of that, it’s going to be very difficult for equities to move higher in a steady fashion at least over the next couple of months.”
According to Mills, after the massive $2 trillion economic relief package and the actions by the Federal Reserve, the only key upside catalyst left is a meaningful advancement in treating the deadly virus.
“The fact that the Fed is now here and they’re supporting the credit markets… effectively puts a little bit of a bottom in the market,” Mills said. However, “the blind spots that we’re facing in terms of the contraction in GDP and the contraction in earnings are large enough that investors just don’t know what the right price is in terms of the most probable outcome over the next couple of quarters.”
Jeffrey Gundlach, chief investment officer for DoubleLine Capital, disagrees that a bottom has been reached, and instead says that the March lows will be surpassed in April as economic uncertainty further riles the market.
“I think we’re going to get something that resembles that panicky feeling again during the month of April,” Gundlach said this week during a webcast on the market and economic impact of the coronavirus pandemic.
Gundlach also warned the market “won’t be back to where it was prior for a long time to come… particularly on a real basis.”
“We will get back to a better place, but it’s just not going to bounce back in a V-shape back to January of 2020,” Gundlach said.