Article

2020-05-19 Economy

Here's what it will take for the stock market to hit a new record within 2 months

[MarketWatch] Many investors not familiar with the mechanics of short squeezes are confused by the strength of the stock market rally that began after the S&P 500 hit a coronavirus low on March 23. Short-squeeze-related actions were the force that unleashed the strong rally.

As the market continues to rally, the odds that the stock market will set a new record within the next two months are rising. I see it as 55% now, up from just 30% on May 13. As impressive as that rapid shift is, I will wait until the odds reach 70% to my call.

What will push the likelihood to 70%? The second leg of the short squeeze has to start. And although stocks are surging on Monday, I am not yet seeing this — bid-ask spreads aren’t widening and trades aren’t being done predominantly at the ask price.

Investors should consider what the trigger for that rally may be. One could be success with a coronavirus vaccine. Moderna MRNA, +19.95% has announced positive interim clinical data from its coronavirus vaccine Phase 1 study; the immediate stock market reaction has been very positive. The data is impressive in that the magnitude of the response to the vaccine is of the same magnitude as the body’s immune response caused by a natural coronavirus infection.

It is conceivable that the Moderna news along with more potential good news regarding vaccines from the likes of Pfizer PFE, +0.82%, Johnson & Johnson JNJ, +0.05%, Novavax NVAX, +30.55% and Inovio Pharmaceuticals INO, +5.51% and good news on antivirals such as from Sorrento Therapeutics SRNE, -3.84%, may cause a second leg of the short squeeze to start.

More broadly, the economy is opening up but there is significant uncertainty about how consumers will respond. The trillions of dollars in fiscal stimulus is helping, but stock investors should also be concerned about massive budget deficits and borrowing. The Federal Reserve is increasing the money supply like there is no tomorrow, but there are consequences to a bloated central-bank balance sheet. There is optimism about antivirals and vaccines but there are no guarantees.

Shouldn’t the stock market be taking into account the damage that has already been done to the economy? The answer is the market always looks forward.

Posted by Besoeker 2020-05-19 05:15|| || Front Page|| [6 views ] Top

#1 The answer is the market always looks forward.

Well, except for employment numbers and earnings reports anyway.

This is why the usual suspects have been drooling about "the second wave" of Chinavirus and how it "could be worse" than the initial wave. If the plan was to keep the economy flat on its back thru the November election, well, that's not going to happen. If the market snaps back with a vengeance, Trump wins big. So be on the lookout for Plan B v. 2.2020.wtf from the anti-Trump crowd.

Posted by M. Murcek 2020-05-19 08:33|| 2020-05-19 08:33|| Front Page Top

#2 I meant to say, if the economy snaps back with a vengeance...

Posted by M. Murcek 2020-05-19 08:34|| 2020-05-19 08:34|| Front Page Top

#3 The stock market might "snap back", but that doesn't mean the economy will. Who wants government bonds at 0.8% interest?

Posted by Clem 2020-05-19 09:16|| 2020-05-19 09:16|| Front Page Top

#4 #2 I meant to say, if the economy snaps back with a vengeance...

Yeah, that makes more sense.:)

I always wince when Trump touts the stock market, because it's so easy for that to backfire.

Particularly when you consider that the fundamentals of the economy and the state of the market are not necessarily connected in any meaningful way.

Posted by charger 2020-05-19 12:55|| 2020-05-19 12:55|| Front Page Top

#5 he fundamentals of the economy and the state of the market are not necessarily connected in any meaningful way.

There is one very meaningful way that they are connected. They are connected psychologically in many / most peoples minds. Touting the market is a short hand way of touting the economy.

Posted by AlanC 2020-05-19 13:26|| 2020-05-19 13:26|| Front Page Top

#6 Yes, but if the market crashes, then anyone touting it has tied themselves to that crash.

Posted by charger 2020-05-19 13:36|| 2020-05-19 13:36|| Front Page Top

#7 I won't worry (much) about the market or the economy unless posts and comments at ZH become majority bullish.

Posted by M. Murcek 2020-05-19 13:42|| 2020-05-19 13:42|| Front Page Top

#8 ^ LOL. Little danger of that. But if you find yourself at risk of getting cheery read "Heisenberg" over at Seeking Alpha.

Posted by Matt 2020-05-19 14:42|| 2020-05-19 14:42|| Front Page Top

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