Bulls Shiver Once Again with Another Wave of COVID-19 infection?

Summary

• With the full impact of coronavirus on world economy being a known unknown, potential for a second wave of the virus later in the year may hold back investor sentiment to some extent.
• In a sinusoidal trend, markets had gradually been recovering as countries began to ease out of lockdowns but owing to IMF estimating a contraction of 4.9% in global GDP, surge in virus cases, the bear rally seems to be fading.
• According to Forbes, an average bull market lasts 4.5 years. History shows that the stock market has always recovered from its bear markets and downturns to post fresh record highs.

The unprecedented COVID-19 pandemic has spread with frightening speed, infecting millions, and bringing economic activities worldwide to a near-standstill, as countries introduced lockdowns and restrictions on people’s movement to halt the spread of the contagious novel coronavirus. The stock market was no exception to falling prey to the virus and responded to COVID-19 pandemic with worrying volatility.

So much so, the past few weeks have showcased falling markets and rising volatility, traders have panic sold, out of fear and market-wide circuit-breakers were triggered four times alone in March. For instance, two of the largest single day drops in the Dow Jones Industrial Average have been from March of 2020!

A ray of hope dawned towards May and June 2020, when markets enjoyed massive rebound since the March lows. For instance, in mid-June, the Dow and the US stock market staged a rebound based on hopes of recovery and reopening economy, with S&P 500 index closing in the positive territory for the year and Nasdaq Composite attaining its first record close in nearly four months.

However, a cause of worry, perhaps equally as triggering as the virus’ initial spread has been reported cases of COVID-19 second waves in parts of the world. Consequently, the anxiety has driven stock markets back to the bull phase.

Market Performance Amid COVID-19 Second Wave

It is every investor’s optimism that stock markets can always rebound and move higher. However, spiking coronavirus cases and worrying second wave of infections coupled with very high valuations may have ended the brief bear market rally.

The US Tale

Throughout the US only four states are on track to contain the coronavirus.

Taking cues from the recent performance, the Dow fell 730 points or 2.84% on 26 June 2020, to close just above 25,000 at 25,015. This translates into the fact that since its recent high of 27,572 on June 8, it has fallen 2,557 points or 9.3%. Likewise, S&P 500 index dropped almost 75 points or 2.42% on 26 June 2020 to close at 3,009.05 and has declined 223 points from 3,232 or 6.9% since June 8. The NASDAQ too fell 260 points on 26 June 2020.

The reason? In Arizona, Florida and Texas, coronavirus cases on a seven-day moving average increased 300% to 400% (since early to mid-June). So much so, Apple is likely to close 32 of its stores in five states.

Asian Shares Wobbled

As lingering concerns about a renewed spike in coronavirus cases offset growing hopes for a quick economic recovery, Asian shares wobbled last week. For instance, South Korean stocks fell on concern about diplomatic tension with North Korea. In Japan, Nikkei 225 slipped over 1 % to close at approximately 22,259 on 25 June 2020 while Singapore index too fell by over 1% as surging COVID-19 infections cast a shadow over reassuring economic data and hopes for a quick global recovery.

India and China have reported worrying surges in COVID-19 cases in their respective regions.

Australian Stance

The equity market of Australia ended in red on 25 June 2020, and the benchmark index S&P/ASX200 witnessed a sharp decline of 148 points or 2.48 % to 5817.7. However, the next day, S&P/ASX200 settled at 5904.1, indicating a rise of 86.4 points or 1.49 % with most sectors in green. On 29 June, the Australian benchmark index declined by 1.51% and settled at 5815 points.

Russian Market

Recently, Reuters reported that Russian rouble edged lower but held at near two-week highs against the US dollar in the last week. However, Stock markets were closed on 24 June 2020 as President Putin declared a public holiday to hold a military parade that was cancelled amid the outbreak last month.

Bull Market Sentiment on the Rise?

There is no denying the fact that news of a second coronavirus wave has been glum, and it may maintain this narrative for quite some time. Like in the US, flare ups of COVID-19 have recently delivered a fresh gut check to bulls on Wall Street after an unprecedented market rebound.

Global rise in hospitalisations and deaths, threaten to reverse or stall plans to reopen economies. This may impact business activities yet again and the stock market may suffer subsequently. Experts opine that near-term prospects for the stock market are highly uncertain and it may take some time for stock prices to recover to their pre-market crash highs, at least till the virus cases begin reducing and a robust vaccine is launched.

But not all is grim!

According to a JP Morgan survey, since 1928, the US has experienced 14 recessions and 21 bear markets. Still, the market has never failed to recover and pass its previous peak and this time will be no different. Maybe, it is an apt time for investors to use the recent market crash to position their portfolios for a likely stock market rebound over the coming years.