Why are stocks rallying at this moment?

[Albatross]

Does anyone know why the stock market went up yesterday? “Analysts” say it was because the number of Covid-19 cases started to peak.  But I don't think that makes any sense - the social distancing measures that have paralysed the economy have resulted in the figures peaking,  but those same measures have to be maintained indefinitely in order to keep the numbers down. So to me, the economy is in a stalemate against the virus.  Open up and cases start making money again but cases rise (meaning inevitable reinstatement of quarantine measures). Continue quarantine measures and the economy continues to sink. The only thing that will stop this is herd immunity, effective treatment or a vaccine. So... why did stocks go up?

[jeroly]

Does anyone know why the stock market went up yesterday?

The stock market was closed yesterday.

“Analysts” say it was because the number of Covid-19 cases started to peak.  But I don't think that makes any sense - the social distancing measures that have paralysed the economy have resulted in the figures peaking,  but those same measures have to be maintained indefinitely in order to keep the numbers down. So to me, the economy is in a stalemate against the virus.  Open up and cases start making money again but cases rise (meaning inevitable reinstatement of quarantine measures). Continue quarantine measures and the economy continues to sink. The only thi ng that will stop this is herd immunity, effective treatment or a vaccine. So... why did stocks go up?

There are three possibilities here...
1:
The indications that the cases are peaking in European countries hard hit by the virus change the expectations.  Prior to this a longer lockdown period was priced in, and now there is an increase in expectations that the lockdown period will be shorter than previously expected.

This doesn't mean that people are now expecting that things will be back to normal in a week or even a month, but rather that some portion of market participants think it will be shorter than they previously did.  Since on a macro level the market level is the present value of future earnings, if earnings start up sooner the present value is higher.

2:
This has nothing at all to do with the news about new coronavirus cases, but is in response to something completely different such as a reduced need for liquidity by market players, people closing their short positions (which entails a round of buying), a large number of investors deciding to reallocate into stocks over the weekend, etc.

3:
A combination of 1 and 2.

[Ready2Save27]

My guess (and this is a complete guess) is that investors believe that the next couple of weeks will be the worst for the US, and that the economy will improve significantly from there. I don’t agree with that analysis, but that may be what people are thinking.

[RobertFromTX]

It seems we're only going to have 2 months of economic shutdown and the government is basically signalling to banks/debt-holders and bond holders that "we got ya covered"

[Albatross]

Thanks I'm based in Asia,  so to me it was yesterday.

I understand why they might,  as an initial thought,  think that the economy will not be under lockdown for as long as necessary,  but have they not totally missed the point of the lockdown and the consequences if a lockdown was lifted?

[George the Pet Goose]

I believe they see a sunset on the horizon. More talk of companies independently making ventilators, masks, etc. St Josephs hospital in? is injecting patients with the plasma of those who recovered from COVID. Another Doctor says he found a cure he believes. Yet it won;t be until Sept. The same antibodies which fight off SARS, all that research already ordained, saves time. These 5 antibodies appear to prevent the virus from breaking thru the cell. Then more studies and hopefully, be used in hospitals under something called Compassionate Care. The Feds would need to subsidize much of it, he estimated 3 Trillion dollars.

Just seems everyone is trying very hard. New York has a little Lull at the moment regarding the death toll. Just my humble opinion.

[js82]

Does anyone know why the stock market went up yesterday? “Analysts” say it was because the number of Covid-19 cases started to peak.  But I don't think that makes any sense - the social distancing measures that have paralysed the economy have resulted in the figures peaking,  but those same measures have to be maintained indefinitely in order to keep the numbers down. So to me, the economy is in a stalemate against the virus.  Open up and cases start making money again but cases rise (meaning inevitable reinstatement of quarantine measures). Continue quarantine measures and the economy continues to sink. The only thing that will stop this is herd immunity, effective treatment or a vaccine. So... why did stocks go up?

Early trends show the "curve" in a few locales (New York, Washington, California) leveling off, and perhaps coming in below previous projections.  Things being "less bad" than previous projections is causing a bit of upward price movement.

That said, if anyone thinks this is going to be a fast bounce back, they're kidding themselves.  Without a vaccine or significant herd immunity, the reopening will have to be done with a great deal of care, and we won't be able to responsibly do "full speed" until some time in 2021, most likely.

[ChpBstrd]

The number of new cases in the US declined from 37926 on 4/3 to 27621 on 4/4 and 26065 on 4/5. To many, that was the signal that the curve was starting to flatten. Of course, the numbers have been bouncing around for a couple of weeks now, but this is the first 3 day declining streak. Stocks will probably rise tomorrow too because the data for yesterday were posted after 4 p.m.

https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/cases-in-us.html#cumulative

The data are causing me to question my bearish view too. However, I am wary of going all in due to the risk of a mortgage/bond/currency/sovereign bond crisis. Now might be the time to buy calls and get leveraged upside with limited downside. I might do that tomorrow and simultaneously sell some far-OTM puts to offset the cost.

[FINate]

The market looks forward and we had very little information going into this pandemic. There were predictions of 2M US deaths and the complete collapse of the US healthcare system. Hence a fear driven sell-off pricing in worst case scenarios.

Now the situation is not as dire as it seemed back then. It's still bad, especially in hot spots (e.g. NYC), and people need to keep staying home and flattening the curve. But it's working. And stuff is happening with provisioning of ventilators and PPE, vaccine trials, potential therapeutics, and $2T in economic stimulus. A lot has been accomplished in just 2 weeks.

Late Sunday night (PDT) the IHME updated their model (https://covid19.healthdata.org/projections). Several states have already passed peak resource utilization. Many others now have much flatter curves and lower death projections. Many states are now in a much better position relative to last week in terms of having sufficient hospital beds and ventilators.

Not saying traders are reading the IHME model and making decisions based on it. But I think there's a sense that, although this sucks and is tragic, we're making progress and we'll get through this.

[ROF Expat]

IMHO, you're making a mistake of thinking there's a "why" for any short-term movement of the broad stock market.  All the "whys" that you see in the media are after the fact and nobody can prove them right or wrong.  The real trick is consistently predicting market response to events before the fact.  Plenty of traders think they can do this, but I think the very small number of investors/investments that consistently beat the indexes (and most of them aren't doing it by day trading) speaks for itself. 

Individual stocks or even individual commodities are often a different story.  I think it is reasonable to ascribe the increase in oil prices to President Trump's tweet about the Saudis and Russians cutting production.  The same goes for the subsequent decline when his tweet turned out to be incorrect.  The announcement of progress toward a potentially lucrative new drug can directly affect a pharmaceutical company's stock. 

Long-term movements of the stock market do reflect rational valuations, probably best reflected in PE ratios, but those can take many years to even out. 

[MustacheAndaHalf]

... the social distancing measures that have paralysed the economy have resulted in the figures peaking,  but those same measures have to be maintained indefinitely in order to keep the numbers down. So to me, the economy is in a stalemate against the virus.

China was in total lock down, and now the country is in partial lock down.  Demand for fuel will go up, people will start buying again - even if everyone is scared, and going out less.  It's a lot more economic activity than a total lock down.
https://www.businessinsider.com/china-lockdowns-reimposed-fear-second-coronavirus-wave-wuhan-hubei-2020-4

For the second wave to be just like the first, doesn't the U.S. have to slow down it's testing?  Months ago the U.S. was performing hundreds of tests per day, now about 150,000 tests are done in a day.  Look for news on emergency hospitals, like Jarvis center converted by army engineers.  All of that infrastructure will still be in place for new outbreaks, making them easier to handle.  Several countries have been successful with aggressive testing and isolation, which the U.S. may try in an effort to get the economy going again.

[vand]

Does anyone know why the stock market went up yesterday? “Analysts” say it was because the number of Covid-19 cases started to peak.  But I don't think that makes any sense - the social distancing measures that have paralysed the economy have resulted in the figures peaking,  but those same measures have to be maintained indefinitely in order to keep the numbers down. So to me, the economy is in a stalemate against the virus.  Open up and cases start making money again but cases rise (meaning inevitable reinstatement of quarantine measures). Continue quarantine measures and the economy continues to sink. The only thing that will stop this is herd immunity, effective treatment or a vaccine. So... why did stocks go up?

The rather brutal answer is that too many people like you think they're cleverer than average and can outsmart the market with money on the sidelines.

And then it will flip the other way. When everyone has panic-bought back in with the S&P pushing 3000 we'll probably need another sell off, so that the flip floppers can sell again at 2400.


the old saying "if you have to ask.. you'll never know" seems appropriate to apply here

[Albatross]

Thanks all. Some pretty brutal opinions here but I understand that perhaps I am being presumptuous about my ability to understand macroeconomics.

[nsmall]

"brutal"  People were being fair.  I have seen much worse on this site.  Stop trying to time the market.  Its stressful and you wont win at it long term.

[ROF Expat]

Thanks all. Some pretty brutal opinions here but I understand that perhaps I am being presumptuous about my ability to understand macroeconomics.

Understanding macroeconomics and understanding short-term market swings aren't the same thing at all.  If you aren't familiar with it already, check out Benjamin Graham's descriptions of "Mr. Market."  His assertion was that you can't predict market swings, but with enough work, you can make judgments about value.  When you understand the value of a stock, you can judge when the mood swings of the market make a stock a good buy, turning volatility into opportunity. 

[Buffaloski Boris]

Why?  That begs the question: well, why not? 

IMHO it's a combination of sheer raving lunacy combined with central banks dumping trillions into the world economy. Definitely a volatile mixture.  If you're trying to find logic in the markets in the short term, you're going to be disappointed.     

[ice_beard]

Since I've started paying much closer attention to the market and some sectors, I've learned that the only constant thing in the market is the unexpected.  Terrible news can make the market go down or go up.  There honestly doesn't seem to be much rhyme or reason to it.  The increase last week is a perfect example.  This weeks is also an example, although I do see some people getting hopeful because some of our infection rate numbers have improved.  So that is something. 
 
As for current valuations, people (well, the people who determine when to buy and sell at what prices) have the future "baked in".  I find this hard to believe because we really have no idea what the future holds at least in terms of returning to what we used to consider "normal".  How the market is going up 7 and even 10% in a day under these circumstances is incomprehensible to me.

[ChpBstrd]

How the market is going up 7 and even 10% in a day under these circumstances is incomprehensible to me.

1) There are lots of investors trying to call the bottom. They are watching the infection data intently, and moving in/out based on fluctuations in what they see. This ratcheting up and down will continue until the optimists have lost enough money to lose hope and capitulate in a numerical sense. Then the market will drop one more time and it's up, or flat, from there. I suspect a bottom doesn't appear until the last investor gives up looking for it.

2) Short squeezes.

3) Optimistic investor sentiment. Lots of people see this as an opportunity instead of a threat. If you hear "stocks are on sale 25% off!" you are talking with such a person. There are a lot of theories that the curve will flatten in April and the economy will be on the mend by May. The problem will be over and there will be a rebound in consumer demand plus a couple trillion in stimulus yet to be spent. Furthermore, employment will bounce back, mortgages will be paid, financial institutions will remain solvent, international supply chains will reopen, and consumers will resume spending at 2019 levels.

4) Don't fight the fed. ZIRP and $2T in stimulus might be just the beginning for a government that escaped 2008-9 with that same toolkit.