May 26, 2020 / 1:57 PM / a month ago

Instant View: S&P rises above 3,000 level for first time since March

(Reuters) - U.S. stocks rose above the 3,000 level for the first time since March 5 on Tuesday, continuing a rally that has pushed the benchmark index up nearly 35% from its March 23 closing low on hopes for a potential coronavirus vaccine and the reopening of businesses across the country.

Traders with masks work on the first day of in-person trading since the closure during the outbreak of the coronavirus disease (COVID-19) on the floor at the New York Stock Exchange (NYSE) in New York, U.S., May 26, 2020. REUTERS/Brendan McDermid

MARKET REACTION:

* STOCKS: Dow up 2.38%, S&P 500 up 1.90%, Nasdaq up 1.48%

* BONDS: Benchmark 10-year notes US10YT=RR last fell 12/32 in price to yield 0.6981%, from 0.659% late on Friday.

* FOREX: The dollar index =USD fell 0.654%, with the euro EUR= up 0.69% to $1.0974.

COMMENTS:

JASON BENOWITZ, SENIOR PORTFOLIO MANAGER, THE ROOSEVELT INVESTMENT GROUP INC, NEW YORK   

“In my view, the major driver of positive investor sentiment is the reopening of the U.S. and global economy. Reports of economic activity, while still terrible compared to three months ago, have begun to get less bad as compared to the prior month. This suggests the economy has bottomed and may be starting to rebound off its lows.

“A second factor is progress in therapeutic interventions including vaccines. Investors anticipate that a widely available and effective vaccine would dramatically improve economic conditions. The news that Novavax is beginning human trails for its vaccine candidate adds to a growing list of therapies entering the clinic, increasing investor hopes that one or more will make it to the finish line and ameliorate the public health crisis, and with it, the economic crisis.

“Some investors believe that the stock market is getting ahead of itself. Economic conditions are certainly worse than the last time the S&P 500 index advanced to 3,000, with the unemployment rate over ten percentage points higher, for example. However, stock prices are forward looking and discount the potential for future earnings, rather than being solely focused on the present moment. While it seems likely that the economic recovery will not be smooth, and may be interrupted by pickups in newly diagnosed cases as lockdown measures are eased, we also expect growth to resume and corporate earnings to advance well off their lows in the next few years. It is possible that this process could be accelerated by therapeutic intervention, including a widely available and effective vaccine.”

“We also believe the fiscal and monetary authorities have demonstrated a commitment to deploy countercyclical policy measures to support the economy during this challenging time, which is also supportive for stock prices.”

Michael Purves, chief executive of Tallbacken Capital Advisors.

“Initially (the rally) was short covering, then some people playing catchup but as the rally got some legs there are a lot of long-only institutional investors who came into to buy. It is pretty extraordinary. It is a V market with probably not a V economic condition. We have no idea what the economy will be but as equity investors we know Powell will do whatever it takes. What will be interesting is … at some point we deal with second quarter earnings.

“Every investor right now is some sort of trader, you have to ride the rally. You don’t need to own it but you rent it. There is a lot of vulnerability in this market as well… to prolonged economic bad news, if we get bad earnings, at some point the call option fades, you need earnings and real economic activity coming back to life, and you have to grow into the valuation.”

RICHARD STEINBERG, CHIEF MARKET STRATEGIST, COLONY GROUP, FLORIDA

“People have been locked up and when they see sparkles of hope like vaccines, that drives optimism probably ahead of where it should be and clearly ahead of the economy.”

“Today we broke through a key resistance barrier, but based on fundamentals that justification isn’t there.”

“The playbook would tell you that bear market rallies like this will have a another draw down, but who knows if we’re playing by tradition.”

“I don’t think investors should be chasing these levels.”

ROBERT PAVLIK, CHIEF INVESTMENT STRATEGIST, SENIOR PORTFOLIO MANAGER AT SLATESTONE WEALTH LLC

“The importance of crossing that big round number is relatively minor. From a psychological point of view it’s somewhat significant because it gives a little more confidence to the overall market that the market is on the mend and has the potential to move higher. From an investors point of view this numbers these numbers don’t mean much at all. It’s more psychological than anything else.”

“If you’re going to take a look at the market from a valuation perspective, whether it’s a signal to jump in if you haven’t been exposed or to push more money in off the sidelines, it really doesn’t mean that much.”

“It probably means more to Main Street than to Wall Street, to the average person that doesn’t pay attention to the stock market. It’s something that gets reported in the papers. It draws attention to the stock market. People generally associate big round numbers with maybe an improvement in the overall economy.”

“The ability to get back to 3,000 on the S&P is coming off the back of the government stimulus. All the money the government has pumped into the economy, that’s part of it - maybe 25%. Another 25% is the average investor looking to get in and thinking this market is cheap. But most of it is coming from underperformance by a number of large institutions and hedge funds which factors in the fear of missing out. That’s the majority of what’s been going on.”

“Some of the move is on the drug companies like Moderna and the other one today - the Novavax news is what’s doing the heavy lifting today.”

“Because the market has gotten so far so fast, it makes a little sense to do a review of your portfolio and see if it needs any trimming.”

GEORGE GERO, MANAGING DIRECTOR, RBC WEALTH MANAGEMENT:

“People seem to be skeptical of the length and the timing of the rally.”

“Yet you have all this money coming in globally because the U.S. is still the most liquid and safest economy to put money into, especially when so many countries have lower interest rates.”

“I think we’re going to give back a little bit soon as more political headlines emerge and people start thinking about problems with China, problems in Europe, problems everywhere the investor looks.”

PETER CARDILLO, CHIEF MARKET ECONOMIST AT SPARTAN CAPITAL SECURITIES IN NEW YORK

“It’s a rally of hope and there are several things driving it. Economies are reopening around the world and here in the states. And we have several biotech companies beginning first trials of vaccines. If things go well we could have a vaccine by the first of the year.”

“Also, as a symbolic driver, the New York Stock Exchange is reopening, at least on a partial basis. It never stopped trading but it’s symbolic. It means we’re opening up for business.”

“If consumer confidence holds steady that means confidence hasn’t eroded and that will also be good for the market.”

Americas Markets Desk; +1-646 223-6300

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