Equity Markets – How Long?

The contrast between the stock market and the ‘reality’ on the ground is a direct result of policies that have been employed over the past few months. Financial markets can respond quickly while the economy cannot do so in a period of lockdown. We must always remember that markets lead.

As the S&P 500 regains the losses from March and is now flat year-to-date, we must ask where next or how long this can continue? The ongoing cheap money, lack of alternative investments, and opening-up of the economy should continue to support equities for a while. Importantly, disbelief that equities have bounced this aggressively, as reflected by the American Association of Individual Investors Bull/Bear Ratio (see chart below), is another reason for equities to continue higher – the wider market simply has not got the trade on. The fall in the VIX Index below the 25% area at the end of last week is also a sign that the S&P 500 can remain in an uptrend, probably for another month if not until the end of July.

It will take until then to start getting a clearer picture of main street and business through economic data and the next round of earnings reports.

Source: Aspen Graphics, Bloomberg

Source: Aspen Graphics, Bloomberg

SKA