U.S. Stock ETFs Try to Pick up the Pieces After a Steep Sell-Off

U.S. markets and stock exchange traded funds rebounded Friday after their worst single-day decline since March on fears of another coronavirus outbreak and potentially longer period of economic weakness.

On Friday, the Invesco QQQ Trust (NASDAQ: QQQ) was down 0.2%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was 0.4% higher and SPDR S&P 500 ETF (NYSEArca: SPY) was up 0.1%.

Before the rout on Thursday, U.S. equities were rallying with the Nasdaq Composite hitting back-to-back record highs. However, the risk-on sentiment made a quick one-eighty after the Federal Reserve hinted at a longer-than-expected road to recovery and a rise in the number of COVID-19 infections across the U.S. following the rollback of shutdown measures.

“Perhaps the markets have overestimated their fears about the reignition in a number of cases,” Todd Jablonski, chief investment officer at Principal Global Asset Allocation, told Reuters. “In the short term you could see some investors, particularly retail investors who have been moving into the equity space pretty aggressively over the last couple of weeks, take some profit.”

The Thursday pullback may have provided a dose of reality to overly enthusiastic investors as the optimism in equities has been at odds with economic data that showed a slower pace toward economic recovery. The Fed in particular warned that it would be years before the labor market fully recovers.

“The market came to the realization that we had come too far, too fast,” Timothy Skiendzielewski, a portfolio manager for U.S. equities at Aberdeen Standard Investments, told the Wall Street Journal. “We’re still in the very early days of reopening the economy. The employment situation is still very precarious. And there’s no playbook for reopening the economy after a multi-month shutdown.”

Nevertheless, the market selling may not continue as the officials have signaled their willingness to support the economy and credit markets, and the Fed’s willingness to prop up the economy has been a major support for stocks.

“There’s just too much cash sitting around for this to be a deep correction,” Ken Peng, head of Asia investment strategy at Citi Private Bank, told the WSJ. “The Fed and other major central banks have already made it very clear they’re there to buy the bottom basically.”

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