US stocks jump on hopes for policy stimulus but rally “prone to failure”

Markets rebounded on Monday.

The S&P 500 surged 4.6 percent, the STOXX Europe 600 rose 0.1 percent and the Shanghai Composite jumped 3.1 percent.

Stocks “closed up strongly on the hope that fiscal and monetary stimulus is on the way,” said Kathy Lien, managing director of FX strategy at BK Asset Management, in a note.

Indeed, Chinese stocks rose despite extremely negative economic data.

The National Bureau of Statistics manufacturing PMI fell to a record low of 35.7 in February from 50 in January while its nonmanufacturing PMI fell to a record low of 29.6 from 54.1.

The Caixin/Markit manufacturing PMI fell to a record low of 40.3 in February from 51.1 in January.

However, Vasu Menon, executive director of investment strategy at OCBC Bank, questioned how much policy stimulus, particularly monetary policy, can help with a virus problem. “I’ll be cautious, I wouldn’t be too aggressive at this juncture,” he said.

In the US, the Institute for Supply Management's manufacturing PMI fell to 50.1 in February from 50.9 in January.

The surge in the US stock market was more or less predicted by John Hussman, president of Hussman Investment Trust.

Hussman noted in a commentary dated 1 March that the market conditions on Friday set the stage for a possible “clearing rally” in the coming days, “possibly including one or more daily advances on the order of 4-6%”.

However, Hussman also warned that the clearing rally may be of the “fast, furious, prone-to-failure” variety as “sustained risk-aversion related to pandemic flu may prove far more persistent”.