Markets fall but downside risk reduced by “unprecedented policy support”

Markets fell on Monday.

The S&P 500 fell 1.0 percent, the Nikkei 225 plunged 2.3 percent and the Shanghai Composite fell 0.5 percent. European markets were closed for holidays.

Nigam Arora wrote on Monday that the recent stock market rally had been the result of a short-squeeze and is likely to end this week.

“There should be downward pressure on the stock market after the short-squeeze ends, unless there are new triggers to the upside such as medical developments against the coronavirus, pleasant surprises in what companies say about the future in their earnings reports and conference calls, more monetary stimulus from the Fed and more fiscal stimulus from the government,” he wrote.

Still, some analysts think the market has bottomed, a short-term pullback notwithstanding.

Morgan Stanley analysts led by chief US equity strategist Michael Wilson wrote on Monday that support by the Federal Reserve should help drive the stock market up, suggesting that “investors should have no doubt about the Fed’s resolve to do whatever it takes to make sure the recession does not turn into a depression”.

Similarly, Goldman Sachs strategists led by David Kostin wrote on Monday: “The combination of unprecedented policy support and a flattening viral curve have dramatically reduced downside risk for the U.S. economy and financial markets and lifted the S&P 500 out of bear market territory.”

And while Canaccord Genuity chief market strategist Tony Dwyer warned of an imminent pullback in stocks, he said: “Our plan is to go back on offense as the market pulls back toward the March 23 low.”