A bounce in stocks is likely to face a test in the coming weeks as investors try to gauge whether countries and U.S. states emerging from lockdowns can arrest a sharp fall in economic growth without provoking a resurgence of coronavirus cases.
FILE PHOTO: The New York Stock Exchange is seen in the financial district of lower Manhattan during the outbreak of the coronavirus disease in New York City, U.S., April 26, 2020. REUTERS/Jeenah Moonhas rallied about 30% off its March lows, fueled by monetary and fiscal policy designed to stimulate the economy after the United States ordered country-wide lockdowns to stop the spread of the novel coronavirus, which has surpassed 1 million cases in the United States.
Investors are eager to look forward after the devastation the shutdowns have already wrought. Data this week showed the U.S. economy contracted in the first quarter at its sharpest pace since the Great Recession. A study by Goldman Sachs found that initial reopening timelines in other countries have often proven “too optimistic” and recovery is quicker in manufacturing and construction than in consumer services.
In China, for example, “simply opening has not necessarily resulted in a return of consumer buying,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey. That issue is particularly important in the United States, where consumer spending accounts for more that two-thirds of economic activity.
Those sectors have outperformed this week, a potential sign that investors may be taking profits in market leaders such as technology and rotating into areas that have lagged.
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