Stock Market: The Confusion Of The Pundits

 (Drivebycuriosity) - It seems the pundits are confused. The US stock market rallied more than 40% since the March low and recovered most of the losses  (chart above cnbc ). But many experts are skeptical and dismiss the gains as a bear market rally. Bear markets start when the stock market drops 20% or more and they end when the stocks recover 20% or more which starts a new bull market (.investopedia ). The pundits were fast to call a new bear market after a quick drop of 30% in March but they dismiss the new bull market. "We aren’t arguing the bear market is over"  (msn  fisherinvestments).   A double standard?

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The pundits are confused because the Corona bear market lasted just 4 weeks, way shorter than the shortest bear on record (drivebycuriosity). The skeptics also doubt that the gains are sustainable. I believe the risk that the market will revisit the March depths is low.

​​The short lived Corona bear market mirrored the horror as the pandemic became global. In March stocks were pricing in worst case scenarios and sellers panicked. The daily growth rates of new infections were above 30%, the number of cases doubled in just 3 days, the headlines warned about exponential growth and pundits predicted that in the US 50% or more will be infected and everything will be shut down for many months.

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Today many countries - including Australia, Taiwan, South Korea, Germany & Austria - are almost rid of the virus and even in the US the numbers of new Corona cases, hospitalizations and deaths dropped sharply (charts above). That gives many countries in Asia & Europe and states in the US the opportunity to reopen step-by-step. There are also reports that parts of the US economy started to recover, supported by Friday´s surprisingly strong US job market report.

The second half of the year could show an economic boom starting in the third quarter. There is a huge backlog demand. People are tired from sitting quarantined at home, they will be happy to go back to work and to visit shops, bars, restaurants. The recovery will be still be fueled by the $6 trillion plus stimulus tsunami which works as financial steroids. There also will be strong tailwinds from record low interest rates  and oil prices are still much lower than at the start of the year.

There is also a big fundamental change going on. More people are working, learning & shopping from home which is fostering digitization and raising efficiency & productivity of the economy ( driveby ). Online sales in the US are surging, more people are binge watching Netflix & Amazon Prime, listening via Spotify, reading Kindle books, surfing Facebook & Twitter and businesses are running more & more on cloud computing. Amazon already hired 100,000 people to deal with the exploding demand and Facebook reported explosive demand.