As the stock market rockets higher today, tempting investors to increasingly bet on the likelihood of a v-bottom from the lows in March, a number of analysts and market experts continue to express skepticism over whether this rally will continue.
Billionaire investor Howard Marks is one of the most recent voices in a broadening list of market veterans that are joining forces to admonish investors that the market rebound has become extended, given the struggle to develop a cure for Covid-19 and its economic fallout in the interim
Like others, Marks feels that markets will ultimately encounter additional turbulence once the Federal Reserve’s unprecedented, but nonetheless ephemeral support mechanisms lose their power, according to a Bloomberg News report.
The U.S. central bank in March initiated an unprecedented effort to bolster the economy and financial markets and relieve investors’ minds, using a mixture of asset purchases and an announcement of two corporate-credit facilities with $750 billion in spending power.
Then, on April 9, the Fed announced a $2.3 trillion lending program that will offer additional credit to banks that issue Paycheck Protection Program loans and buy up to $600 billion in loans issued through the Main Street program to medium-sized firms.
However, not all the moves from the Fed and other U.S. leaders have assuaged investors and analysts who are hoping for a swift recovery and are still troubled by a rampant coronavirus pandemic with no cure as of yet.
“I think there is a little bit of nervousness in this market due to thin leadership and the potential that the stay-at-home orders and thus a low-consumption economy will last longer than anyone had expected,” Yousef Abbasi, global market strategist at INTL FCStone, told the WSJ. “If it lasts longer than anyone had expected, then you could argue that the recovery becomes that much more arduous.”
Just last week Fed Chairman Powell’s bleak outlook on the economy in the midst of the ravages of the coronavirus pandemic shook markets to their core, resulting in a precipitous, but short-lived decline.
“While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks,” Fed Chairman Powell said Wednesday, acknowledging that more needs to be done to bolster the economy amid the coronavirus pandemic. The remarks sank the Dow and S&P 500, which lost 2.2% and 1.8%, respectively, while the Nasdaq Composite gave up 1.6%.
Other veteran market players have also expressed doubt over the viability of stocks at this point.
Stanley Druckenmiller of Duquesne Family Office said Tuesday: “Risk-reward for equity is maybe as bad as I’ve seen it in my career.”
While it is unclear what the path to recovery will ultimately look like for markets, one common element among analysts and experts is that things are opaque at this point.
“This market is still in this muddle-through zone where you’re trying to understand how difficult will this economic environment be or is there an all-clear coming soon,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, noting the S&P 500 tested the lower end of its recent trading range.
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