Fewer US stocks hit new 52-week lows. Bond market liquidity has improved and credit spreads are still wide but peaked in March.
- Last update: April 5, 2020, 7:53 p.m.
New York: Investors are analyzing a wide range of signals, from infection numbers to more traditional indicators, to get clues about the trajectory markets in the coming weeks as the pandemic caused by the novel corona virus continues to spread.
Some point to signs that the worst nasty sell-off that has pushed the S&P 500 down from its all-time high of 34% may subside, despite the fact that markets remain turbulent and far from their highs.
Volatility has decreased from its March highs. Fewer US stocks hit new 52-week lows. Bond market liquidity has improved and credit spreads are still wide but peaked in March.
“Most of the malicious, indiscriminate sales were made in mid-March,” said Keith Lerner, chief market strategist at Truist / SunTrust Advisory Services in Atlanta.
Economic indicators such as employment data are only just beginning to take into account the extent of the economic damage caused by the pandemic, so investors can look at different corners of the market and get information about the spread of the virus to assess the direction in which asset prices are likely to go.
Investor sentiment, which is often viewed as a contrary indicator, is a signal for a possible turnaround in US stocks. Bank of America Global Research’s sell side indicator fell to 54.9% in March. At this level or below, US equity yields were positive in 94% of cases over the following 12 months, the bank’s analysts said.
A contrary indicator means that bearish investors can predict a bullish market – and vice versa.
Some investors have also found parallels between the spread of COVID-19, the disease caused by the novel coronavirus, and movements in the Cboe Volatility Index, known as the Wall Street fear measure.
The VIX, which has risen to its highest level since 2008 as a result of market sell-off, has closely monitored the number of countries in which the daily growth of coronavirus cases exceeds 10%, said Jason Hunter, Head of Global Fixed Income and US Equity Technical strategy at JP Morgan.
The index has fallen as the number of countries with a sharp increase in cases has decreased.
“Any improvements in this process may limit the severity of a retest of the stock index this spring,” Hunter wrote in a research note. “More importantly, how the eruption story develops in summer and autumn will likely determine the overall duration and extent of the bear market.”
Tracking the number of U.S. states with daily growth of 10% or more in confirmed cases shows a similar pattern, as Hunter noted. The index was at 48.43 on Friday, below its all-time high of 82.69 on March 16.
At the moment, the overall numbers look bleak. Confirmed US cases exceeded 256,000 on Friday. According to a Reuters list of official data, more than 6,500 Americans have died, and more than a quarter of these deaths occurred in New York City.
(An interactive graphic to track the spread of the novel corona virus in the United States can be found here: https://graphics.reuters.com/HEALTH-CORONAVIRUS-USA/0100B5K8423/index.html.)
Economic data was just as boring. On Friday, the Department of Labor monthly wages report showed that the US economy cut 701,000 jobs in March, a record 113 months in a row. The previous day, the Department of Labor reported that weekly unemployment claims in the US hit a record 6.6. Million.
This level of market disruption has made some market participants more doubtful. Investors may be too optimistic about their expectations for a strong recovery in the market, even if the number of US coronavirus cases falls earlier than expected, said Nancy Perez, senior portfolio manager at Boston Private.
“The market has discounted a V-shaped recovery,” she said. “I don’t know if a U-shaped recovery is discounted. If people find out that it will be more U-shaped, we may return some (of those gains).”