Stock Index ETFs Struggle Starting Week As Reopening Fears Resurface

After climbing higher into the close of last week, stock markets are weaker on Monday, as investors are once again getting cold feet about the potential issues with reopening the economy prematurely.

The indexes are mixed on Monday, which is keeping stocks in range. The Dow Jones Industrial Average lost 160 points, or 0.64% as of noon EST, but suffered greater losses earlier and in the extended session on Sunday futures trading. Meanwhile, the S&P 500 gave up 0.3%, also lower overnight, and the Nasdaq Composite regained some lost ground and is trading 0.4% higher, boosted by Amazon, Netflix, Alphabet, and Apple gains.

Stock Index ETFs are echoing moves in the benchmark stock indexes as well. The SPDR S&P 500 ETF Trust (SPY), and the SPDR Dow Jones Industrial Average ETF (DIA) are both lower today, while the Invesco QQQ Trust (QQQ) has recovered from its earlier losses on the day to trade in the green.

The number of coronavirus infections has been climbing and that is troubling investors as states in the U.S. and countries around the world prepare to reopen parts of their economies. South Korea and other countries that appeared to have weathered the worst of the coronavirus have seen a spike in the number of cases, which has created uncertainty in markets. Stocks that would benefit most from reopening were affected the most including travel-related stocks, airlines, retailers, cruise lines, and casinos.
Veteran trader and investor Paul Tudor Jones sees the market at a pivotal place now that indexes have rallied more than 30% off their March lows.

“I think this part of the bounce was easy to forecast, I think what happens from here again depends a lot on Covid stuff,” said Jones, founder of Tudor Investment Corp., on CNBC’s “Squawk Box.” “There’ll be a shift in focus from liquidity issues somewhere down the line to solvency issues. If we don’t find a vaccine or a cure, if we don’t find a much better way of testing at scale … then I think the market’s going to have a much more difficult time.”

The S&P 500 gained more than 1% on Thursday and Friday, leading to the broader-market average’s first weekly advance in three weeks, and rallied 3.5% cumulatively last week, as investors seemed unaffected by the biggest one-month job losses on record to concentrate on the prospect of reopening the country.

While analysts are also optimistic about reopening the country, there is a focus on technically overbought levels in the markets, adding a sprinkle of caution to that positive outlook.

“The world very much remains on the path to reopening, a process that will accelerate over the coming weeks,” said Adam Crisafulli, founder of Vital Knowledge, in a note. He added, however, the S&P 500 is still overbought at current levels even as expectations of a gradual resumption of economic activity continue to increase.

“There will be a reckoning around the reopening and linearity narratives (i.e. both are too sanguine right now),” Crisafulli wrote.

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