Has the stockmarket bounce stalled?
US stocks have come under renewed pressure as America suffers a second wave of Covid infections.
![People on Miami Beach © AFP via Getty Images](https://cdn.mos.cms.futurecdn.net/jRxTWGK8opqjdRnTEpn5wb-415-80.png)
Is the “bear market rally” over? America’s S&P 500 index finished last week 6.9% off its 8 June high, says Chuck Jones on Forbes. The problem is a surging coronavirus epidemic in the southern states, with new cases across Texas, Arizona and Florida more than quadrupling since the start of June. Add in “very high” equity valuations and it is difficult to see how this rally continues.
The FTSE underperforms
America’s Covid-19 failures are now difficult to ignore, says John Authers on Bloomberg. Mobility data in affected states is sagging again even as levels in much of Europe return to normal. Hotel, cruise and airline stocks have come under renewed pressure.
Talk of a “trade-off” between fighting the coronavirus and saving the economy has proved a false choice. If Covid-19 is rampant then consumers will choose to stay home, preventing the economy from functioning normally.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
![https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg](https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748-320-80.jpg)
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
On this side of the Atlantic, markets have probably learnt to live with the idea that there will be “occasional flare-ups” in cases, says Jim Armitage for the Evening Standard. Yet the FTSE still finished the second quarter on a gloomy note following news that UK GDP fell at its fastest pace in 41 years in the first quarter.
The FTSE 100 finished the second quarter this week up 9%, its best return in a decade. Yet it remains down 18% for the year as a whole, significantly worse than the 5% fall on the S&P 500 or the 8% decline on Japan’s Topix and Germany’s Dax indices. The London market remains a “serial underperformer” compared with other major markets, says Michael Hewson of CMC Markets.
The easy money has been made
There is an argument that US stocks are actually cheaper than they should be, says James Mackintosh in The Wall Street Journal. Near-zero interest rates are locked in for the foreseeable future and Treasury bond yields are “on the floor”, so their yields will not tempt equity investors.
With money so cheap, financial models imply that stock valuations should be high. Savers, after all, have few other places to earn a decent return. Yet vertiginous valuations are starting to induce “altitude sickness” in some investors, says Edward Bonham-Carter of Jupiter Asset Management. The resurgence in US coronavirus cases will keep stock markets under pressure for now, reckons Oliver Jones for Capital Economics. Yet we are far from bubble territory. One reason that valuations look so high is because analysts have slashed earnings forecasts for this year, but profits should rebound once the pandemic is behind us. Equities are poised to outperform, just so long as runaway virus outbreaks don’t force any major economies back into lockdown again.
Talk that much higher earnings are just around the corner sounds like bubble logic, says Randall Forsyth in Barron’s. Globally, stocks have just had one of their best quarters in decades. Markets are not necessarily heading for a crash, but it seems the “easy money has been made… caution should be the byword”.
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
-
Regulator moves to protect access to cash amid branch closures and disappearing ATMs
News The Financial Conduct Authority has told banks to start assessing if local communities have adequate cash access from mid-September
By Marc Shoffman Published
-
VAT hike on private school fees could come earlier than previously expected
The government could start charging VAT on private school fees as soon as January 2025, according to the latest reports. What does it mean for parents?
By Katie Williams Published
-
UK mid-caps: an improving outlook
UK mid-caps have perked up and the rally may run further, but long-term investors should remain selective
By Cris Sholto Heaton Published
-
The tobacco industry is going smoke-free - how to profit from it
Tobacco companies have realised their traditional products are on the wane. But new opportunities have opened up – and should prove lucrative
By Rupert Hargreaves Published
-
Is it time to invest in creative industries?
Any industrial strategy should not overlook the creative industries, one of our top national assets
By David C. Stevenson Published
-
Is Mercia Asset Management set for success?
Mercia Asset Management helps the government fund smaller companies in Britain’s regions. Should you invest?
By Rupert Hargreaves Published
-
British stocks set for a boost
British stocks are due for a bounce as the UK looks more stable compared to many economies
By Alex Rankine Published
-
Ocado shares jump by a fifth
Ocado takes a turn for the better after attractive profit forecasts were announced
By Dr Matthew Partridge Published
-
The AI boom is on borrowed time
The hype around the AI boom could be on its way out – but why?
By Alex Rankine Published
-
Diploma: a blue-chip set for strong growth
Diploma, whose niche products include seals and fasteners, serves an array of growth markets. Should you invest?
By Dr Mike Tubbs Published