US stocks jump, “worst yet to come” for COVID-19

Markets were mixed on Monday.

Early in the day, Asian markets fell, with the Nikkei 225 tumbling 2.3 percent.

However, markets turned up later in the day. The STOXX Europe 600 rose 0.4 percent and the S&P 500 jumped 1.5 percent.

Stocks rose in the US and Europe despite COVID-19 cases worldwide passing 10 million on Sunday.

“If things get really bad, the Fed will step in with additional monetary easing and basically reach into their bag of tricks to do whatever they need to support the market,” said Sam Stovall, chief investment strategist at CFRA Research.

Still, Federal Reserve chairman Jerome Powell said on Monday that “the path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus”.

And at the moment, success in containing the virus appears to be not at hand.

“This is really the beginning,” said Dr Anne Schuchat, principal deputy director of the Centers for Disease Control and Prevention, on Monday of the recent surge in cases in the US.

“Although many countries have made some progress, globally, the pandemic is actually speeding up,” said Tedros Adhanom Ghebreyesus, director-general of the World Health Organization, on Monday. “The worst is yet to come.”

As COVID-19 cases rise, markets look for government support

Stocks fell last week, with the S&P 500 declining 2.9 percent.

Investors became concerned as the number of COVID-19 cases continued to climb in the US and many other countries.

By Sunday, the global number of infections had exceeded 10 million while the death toll had reached half a million.

In the US, California on Sunday ordered some bars to close, the first major rollback of efforts to reopen the economy in the most populous US state. This followed similar moves in Texas and Florida on Friday.

David Russell, vice president of market intelligence with TradeStation, said that things look "worrisome".

"There will be a lot of difficulty predicting what earnings are going to be like with a disruption of this magnitude," said Russell.

However, some remain optimistic.

"Markets are clearly responding to the significant stimulus in the US and throughout the world," said Kent Insley, chief investment officer with Tiedemann Advisors. "Stocks still look more attractive over the long term compared to bonds."

"The government is providing so much support, so I'd be surprised if the market touches the March lows again," said Ted Swimmer, head of capital markets with Citizens Bank.

Sam Hendel, president of Levin Easterly Partners, said that while he is worried about heavily indebted energy firms and struggling travel and leisure companies, others like tech, consumer staples and health care have the "ballast to withstand an economic contraction".

US stocks plunge amid setback in economic reopening

Markets were mixed on Friday.

Early in the day, the Nikkei 225 rose 1.1 percent.

However, later, the STOXX Europe 600 fell 0.4 percent and the S&P 500 plunged 2.4 percent.

US stocks fell after the country reported a single-day record rise of 37,000 in infections on Thursday. Governors in Texas and Florida re-imposed restrictions on bars on Friday, marking a setback to hopes of reopening the economy.

Outside the US, localised restrictions have also been re-imposed in parts of the Portuguese capital Lisbon, western Germany, Beijing and Victoria state in Australia.

Central banks boost markets, economy in “depression-like crisis”

Markets were mostly higher on Thursday.

The S&P 500 rose 1.1 percent while the STOXX Europe 600 rose 0.7 percent.

Earlier in Asia, though, markets fell, with the Nikkei 225 falling 1.2 percent.

US stocks got a boost after the Federal Deposit Insurance Commission and Office of the Comptroller of the Currency said they are planning to loosen the restrictions imposed by the Volcker rule.

The Federal Reserve did subsequently put new restrictions on bank share buybacks and dividend payments after its annual stress test found that several banks could get uncomfortably close to minimum capital levels in scenarios tied to the COVID-19 pandemic.

European stocks were boosted by a European Central Bank announcement that it would offer euro loans against collateral to central banks outside the euro area to backstop funding markets amid the COVID-19 pandemic.

Meanwhile, the third and final reading of first-quarter US gross domestic product confirmed that the economy contracted at an annualised pace of 5 percent.

However, the US economy is already showing signs of recovery, with durable goods orders rising 15.8 percent in May and new jobless claims falling in the week ended 20 June from the previous week.

Still, a Reuters poll of over 250 economists taken this month showed that most think the ongoing recessions in most major developed economies would be deeper than predicted last month.

“We expect global GDP to surpass pre-COVID levels only in late 2021, and later still for advanced economies,” said Ajay Rajadhyaksha, head of macro research at Barclays. “And much could still go wrong, especially if the virus has a second wave.”

“To call this crisis a recession is a misnomer,” said David Shulman, senior economist at UCLA Anderson School of Management. “Make no mistake, the public health crisis of the pandemic morphed into a depression-like crisis in the economy.”

Markets fall sharply amid surge in COVID-19 cases

Markets in the US and Europe fell sharply on Wednesday.

The S&P 500 tumbled 2.6 percent and the STOXX Europe 600 plunged 2.8 percent. Asian markets were mixed, with the Shanghai Composite rising 0.3 percent but the Nikkei 225 falling 0.1 percent.

Oil prices plunged more than 5 percent.

A surge in COVID-19 cases intensified fears of another round of government lockdowns and worsening economic damage.

In the US, the three most populous states, California, Texas and Florida, all set records for the number of new cases in one day. The governors of New York, New Jersey and Connecticut announced that visitors from states with high coronavirus infection rates must self-quarantine for 14 days on arrival.

“Today was finally the day markets came to terms with the fact that increasing COVID-19 cases could mean a slower recovery in the economy,” said Art Hogan, chief market strategist at National Securities.

News that the US may modify duties on a range of EU products and was weighing tariffs on other products from Britain, France, Spain and Germany also hurt market sentiment.

Meanwhile, the International Monetary Fund said it now expects global output to shrink by 4.9 percent, compared with a 3.0 percent contraction predicted in April.

“People who are looking for a magical V [recovery] are delusional,” said Julian Emanuel, head of equities and derivatives strategy at BTIG.

“Investors are positioned very optimistically,” said Liz Ann Sonders, Charles Schwab chief investment strategist. “When you get to extremes of sentiment in either direction it often takes less of a catalyst to ignite the naturally contrarian move in the market.”

Markets rise as COVID-19 seen “tolerable”

Markets rose on Tuesday.

The S&P 500 rose 0.4 percent, the STOXX Europe 600 jumped 1.3 percent and the Nikkei 225 rose 0.5 percent.

IHS Markit’s preliminary composite PMI for the US rose to 46.8 in June from 37 in May while the composite PMI for the eurozone rose to 47.5 from 31.9.

Dr Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said in testimony before Congress on Tuesday that parts of the US are beginning to see a “disturbing surge” in COVID-19 infections.

However, Tony Roth, Wilmington Trust’s chief investment officer, said that recent gains in the market show “guarded optimism around the COVID situation becoming more tolerable, or livable”.

Nasdaq hits record high as V-shaped recovery seen

Markets were mixed on Monday.

In the US, the S&P 500 rose 0.7 percent while the Nasdaq Composite rose 1.1 percent to a record high.

Elsewhere, however, the STOXX Europe 600 fell 0.8 percent and the Nikkei 225 fell 0.2 percent.

“There remains a degree of concern that a rise in infection rates ... could well derail the prospects for a recovery as economies continue to try and re-open,” said Michael Hewson, chief market analyst at CMC Markets.

Indeed, while hopes for a sustained re-opening of economies and recovery have been boosted by anticipation for a vaccine for COVID-19, recent research from China showed that levels of an antibody found in recovered patients fell sharply in 2-3 months after infection for both symptomatic and asymptomatic patients, raising questions about the length of any immunity.

Still, many analysts are optimistic.

“Virus numbers are picking up,” said Bruce Bittles, chief investment strategist at Robert W Baird & Co. “But it’s not to the extent that we’re looking at a shutdown again.”

“History is not on the side of investors expecting anything less than a V-shape,” wrote analysts at Jefferies.

Daily increase in COVID-19 cases at record high

The S&P 500 rose 1.9 percent last week even as the number of COVID-19 cases continued to rise in the US following the re-opening of the economy.

The US reported more than 30,000 new coronavirus cases on Friday and Saturday, the highest daily totals since 1 May, according to data compiled by Johns Hopkins University.

The Centers for Disease Control and Prevention now forecasts between 129,000 and 145,000 total reported COVID-19 deaths by 11 July.

Globally, the World Health Organization reported a record increase in COVID-19 cases on Sunday, with the total rising by 183,020 in a 24-hour period.

Brazil, the world’s No. 2 COVID-19 hot spot after the US, hit a total of 1,085,038 confirmed cases and 50,617 deaths on Sunday, with experts saying that the true numbers are much higher because of a lack of testing.

Even countries that had previously brought the disease under control are seeing a resurgence in cases.

China reported on Sunday 26 new confirmed coronavirus cases for 20 Jun, with 22 cases in Beijing. A fresh cluster in the capital has resulted in parts of the city being sealed off.

In Germany, health authorities reported that the coronavirus reproduction rate jumped to 2.88 on Sunday, up from 1.79 a day earlier, indicating a rising infection rate.

WHO says COVID-19 in “new and dangerous phase” amid market optimism

Markets were mixed on Friday.

The Nikkei 225 rose 0.6 percent and the STOXX Europe 600 rose 0.6 percent but the S&P 500 gave up early gains to fall 0.6 percent.

An announcement by Apple that it would re-close 11 stores in Florida, the Carolinas and Arizona starting on Saturday triggered a reversal in US stocks as it re-ignited fears of the COVID-19 pandemic.

Also on Friday, the World Health Organization reported that there had been 150,000 new COVID-19 cases on Thursday, the highest in a single day.

“The world is in a new and dangerous phase,” said Director General Tedros Adhanom Ghebreyesus. “The virus is still spreading fast, it is still deadly, and most people are still susceptible.”

Joe Saluzzi, co-manager of trading at Themis Trading, said that the market has been reacting to the news on the pandemic and that “we are going to be stuck here for a while until there’s clarity on the virus, and that could take months”.

Still, Mike Loewengart, managing director at E-Trade Financial Corp, said that “optimism around reopenings could fuel a comeback” in sectors like energy and consumer discretionary.

Vishnu Varathan, head of economics and strategy at Mizuho Bank, was also optimistic in a note. “Simply put, markets view pandemic risks as passé, relegating them to the backseat (and rear-view mirror) as they look for an upturn ahead.”

Markets mixed, “recovery likely to be less V-shaped”

Markets were mixed on Thursday.

The S&P 500 edged up 0.1 percent but the STOXX Europe 600 fell 0.7 percent and the Nikkei 225 fell 0.4 percent.

Concerns over the COVID-19 pandemic continued to be the dominating theme.

In the US, Arizona reported a record-high number of new confirmed cases while Texas saw an 11 percent daily spike in hospitalisations for COVID-19 on Wednesday. California, meanwhile, reported its largest-ever daily increase of COVID-19 cases.

In China, Beijing has reportedly closed schools and cancelled flights to contain the new wave of COVID-19 cases.

“For all the optimism that central bank and government stimulus will help alleviate more permanent economic scarring, there is rising concern that any recovery is likely to be less V-shaped and more a long U-shaped type of rebound,” said Michael Hewson, chief market analyst at CMC Markets UK.

The Asian Development Bank said in a report on Thursday that developing Asia will “barely grow” in 2020 as “this will not be a V-shaped recovery”.

Economy seeing “pent up demand” but stock rally is “crazy stuff”

Markets were mixed on Wednesday.

The S&P 500 fell 0.4 percent and the Nikkei 225 fell 0.5 percent but the STOXX Europe 600 rose 0.7 percent.

A resurgence in COVID-19 cases in the US and China kept investor sentiment down but James Meyer, chief investment officer at Tower Bridge Advisors, said that “the general consensus is that the economy won’t completely shut down again”.

John Cunnison, chief investment officer at Baker Boyer, said that fresh economic data points to “an economy that’s creating all sorts of pent up demand”.

“If we get on the other side of this virus, there are reasons for being fairly bullish,” he said.

In contrast, Jeremy Grantham, co-founder and chief investment strategist at GMO, called the current rally a bubble.

“This is really the real McCoy, this is crazy stuff,” said Grantham.

He suggested that the level of exposure investors should have to US equities now “is zero and less than zero might not be a bad idea if you can stand that”.

No break from COVID-19 likely, Fed needs to “pull out a bazooka”

Markets rose sharply on Tuesday.

The S&P 500 jumped 1.9 percent, the STOXX Europe 600 surged 2.9 percent and the Nikkei 225 soared 4.9 percent.

Positive US economic data helped boost stocks. Retail sales jumped 17.7 percent in May while industrial production rose 1.4 percent.

Still, investors are likely to remain on edge as the global case tally for COVID-19 climbed above 8 million on Tuesday and the US showed increases in infections even as officials continued their push to reopen economies and end lockdowns.

“We have 21 states where cases are going up and quite dramatically, and it’s not just testing, but more people are testing positive and in some places hospitals are overflowing,” said Michael Osterholm, head of the Center for Infectious Disease Research and Policy at the University of Minnesota.

One US city has gone against the flow. Miami mayor Francis Suarez announced on Monday that the city will not move into the next phase of reopening because of concern over rising COVID-19 cases.

And while many think that the resurgence in cases is part of a second wave of infection, experts say it is not.

Raymond James analysts wrote: “We expected this uptick and anticipate other states will also see upticks as reopenings continue. This isn’t a second wave, this is another swell that is part of the ‘first wave’ of this virus.”

“We’re now recognizing that we’re not going to see the summer break that we had hoped for,” said Dr Leana Wen, an emergency physician and public health professor at George Washington University.

This could be bad news for the economy.

Already, Goldman Sachs economists led by Jan Hatzius are expecting a 2.3 percent fall in disposal income for Americans in 2021, which could “pose a significant risk to the budding recovery in the quarters following the election”.

And Scott Minerd, global chief investment officer at Guggenheim Partners, said that the S&P 500 is likely to retest its 23 March low of 2,237.40 over the next month, potentially falling to as low as 1,600.

“There's a point where the Federal Reserve is going to have to pull out a bazooka,” said Minerd. “And I think the option of buying stocks on the part of the Fed is on the table.”

Indeed, many fund managers seem to agree that another decline is likely.

The latest Bank of America Global Fund Manager Survey showed that 78 percent of them say the market is overpriced, the highest percentage since the survey began in 1998.

Some 53 percent say the comeback from the March lows is a “bear market rally”. Just 37 percent believe it is a new bull market.

Markets mixed as Fed expands credit support

Markets were mixed on Monday.

Early in the day, the Nikkei 225 plunged 3.5 percent while later the STOXX Europe 600 slipped 0.3 percent.

However, the S&P 500 rose 1.3 percent after the Federal Reserve said it is expanding the scope of its $750 billion emergency corporate debt loan facility to include individual corporate bonds, while also scrapping some earlier restrictions for potential borrowers.

“This change underscores the Federal Reserve’s commitment to supporting the flow of credit to large corporations,” said Steve Friedman, senior macroeconomist at MacKay Shields.

Some analysts brushed off reports of rising COVID-19 cases in the US.

“Cases are up, but that’s a result of more testing,” said Kent Engelke, chief economic strategist at Capitol Securities Management. ”You just can’t just close down the economy again,” he added.

Stocks fall as COVID-19 may persist for months

The S&P 500 fell 4.8 percent last week after the Federal Reserve projected that the economic recovery will be weak.

Also probably holding back the market is the concern that the COVID-19 pandemic is far from over.

Indeed, new coronavirus cases and hospitalisations in record numbers swept through more US states over the weekend. Alabama reported a record number of new cases for the fourth day in a row on Sunday while Arkansas, North Carolina, Texas and Utah all had a record number of patients enter the hospital on Saturday.

Former Goldman Sachs executive Gary Cohn had told CNBC last week that the US is not even through the first wave of the COVID-19 outbreak and it could persist for months.

Meanwhile, in China, after weeks with almost no new COVID-19 infections, Beijing has in recent days recorded dozens of new cases linked to a major wholesale food market, resulting in the re-imposition of restrictions.

Markets bounce but global economy faces “significant scarring”

Markets were mixed on Friday.

The S&P 500 jumped 1.3 percent and the STOXX Europe 600 rose 0.3 percent but the Nikkei 225 fell 0.8 percent.

Analysts' views on the direction of the market have been mixed.

“I suspect the bounce is a dead cat bounce,” said Naeem Aslam, AvaTrade’s chief market analyst.

However, Esty Dwek, head of global market strategy at Natixis Investment Managers, said that “the downside had become more limited given a still-bearish consensus, high cash levels, and a broadening rally”.

Meanwhile, a report on Friday showed that the UK economy contracted by a record 20.4 percent in April.

The International Monetary Fund’s Gita Gopinath said that the global economy is recovering more slowly than expected and faces “significant scarring”.

Stocks plunge on weak Fed projection and rising COVID-19 cases

Markets fell sharply on Thursday.

The S&P 500 plunged 5.9 percent, the STOXX Europe 600 tumbled 4.1 percent and the Nikkei 225 fell 2.8 percent.

The falls were mostly attributed to the Federal Reserve's weak economic projections made on Wednesday. It had forecast a 6.5 percent contraction by the end of the year on a year-over-year basis, with the unemployment rate ending at 9.3 percent.

A continuing rise in COVID-19 cases also affected sentiment. The global case tally for the disease rose to 7.39 million on Thursday. In the US, the seven-day average of new cases over the past two weeks is still rising in more than 20 states.

“The stock market has almost had blinders on,” said Kristina Hooper, Invesco chief global market strategist.

Still, Hooper noted: “Typically the initial reaction to the Fed press conference is not the subsequent reaction. There needs to be some digestion by investors.”

Markets mixed, Fed “not thinking about raising rates”

Markets were mixed on Wednesday.

In the US, the S&P 500 fell 0.5 percent but the Nasdaq Composite rose 0.7 percent to a record high.

Elsewhere, the STOXX Europe 600 fell 0.4 percent but the Nikkei 225 rose 0.2 percent.

US stocks fell even though Federal Reserve showed no inclination to raise interest rates after its monetary policy meeting on Wednesday.

“We’re not thinking about raising rates, we’re not even thinking about thinking about raising rates,” said Fed chairman Jerome Powell. He said that there remains “a lot of work” to do with millions still out of jobs.

Nasdaq hits new high along with COVID-19 cases

Markets were mixed on Tuesday.

In the US, the Nasdaq Composite rose 0.3 percent to close at a record high but the S&P 500 fell 0.8 percent while in Europe, the STOXX Europe 600 fell 1.2 percent.

Earlier in Asia, the Shanghai Composite rose 0.6 percent but the Nikkei 225 fell 0.4 percent.

“It does seem, at least right now, that even lower quality stocks seem to be finding interest,” said Noah Hamman, Founder & CEO of AdvisorShares.

There was caution elsewhere in the markets though amid signs that COVID-19 cases and hospitalisations are spiking in parts of California and the US Southwest.

On Tuesday, 21 US states reported weekly increases in new cases of COVID-19. Arizona, Utah and New Mexico all posted rises of 40 percent or higher for the week ended Sunday and were among the states that recorded their highest seven-day average of new coronavirus cases since the pandemic began.

US recession declared, may already be over

Markets were mixed on Monday.

US stocks rose, with the Nasdaq Composite rising 1.1 percent to an all-time high and the S&P 500 rising 1.2 percent to close just 4.5 percent from its high.

Asian stocks were also higher, with the Nikkei 225 jumping 1.4 percent.

However, the STOXX Europe 600 slipped 0.3 percent.

Ironically, US stocks performed well on a day the National Bureau of Economic Research declared that the US economy entered recession in February.

The recession is not expected to last though. Jan Hatzius, chief economist at Goldman Sachs, said that while this is “almost certainly the deepest recession since” the war, “it is almost certainly also the shortest recession”.

“From the market’s perspective, the economic impact of COVID is basically over. We still may see spikes in cases, but it will be difficult politically to shut down economies again,” said Bill Callahan, an investment strategist at Schroders.

S&P 500 in “broad bull market” as US employment surges

The S&P 500 rose 4.9 percent last week as it maintained a rally from its March low.

The advance last week was boosted on Friday by a report that US employment rose by 2.5 million in May.

That surge in employment has raised hopes for a V-shaped economic recovery.

Jan Hatzius, chief economist at Goldman Sachs, said that Friday’s “report marks the beginning of the labor market recovery in our view, and we expect the unemployment rate to fall further in June”.

Tom Porcelli, chief US economist at RBC Capital Markets, said that “a June payroll print at north of 10 million is a reasonable starting point for the conversation”.

Indeed, Edward Yardeni, president of Yardeni Research, told CNBC on Friday that the May employment report is a game changer for Wall Street.

“The economy may very well be catching up with the stock market rather than the stock market going off on its own,” he said. “It’s going to be a pretty broad bull market here.”

Markets surge with US jobs

Markets rose on Friday.

The S&P 500 surged 2.6 percent, the STOXX Europe 600 jumped 2.5 percent and the Nikkei 225 rose 0.7 percent.

US and European stocks were boosted by a report that showed that US employment rose by 2.5 million in May.

“Ultimately, this report provides additional confirmation for risk asset investors who are betting on a faster recovery of the economy.,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

“One month does not make a trend, but the sharp turn in May justifies a bit more optimism about the near-term outlook,” said Jim Baird, chief investment officer at Plante Moran.

“These rallies can become self-sustaining as more investors rush in through fear of missing out,” said Lewis Grant, a senior portfolio manager at Federated Hermes.

Oil prices also surged, with news that major oil producers will convene Saturday to discuss plans for extended productions cuts adding to the boost from the US employment report.

West Texas Intermediate crude jumped 5.7 percent while Brent surged 5.8 percent.

Markets mixed, US job losses continue

Markets were mixed on Thursday.

In the US, the S&P 500 fell 0.3 percent while the Dow Jones Industrial Average closed marginally higher.

Elsewhere, the STOXX Europe 600 fell 0.7 percent while the Nikkei 225 rose 0.4 percent.

While the S&P 500 snapped a streak of four consecutive gains, the recent rally suggested to Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research, that “things are going to get better”.

Indeed, US investors on Thursday largely shrugged off a report from ADP showing that a total of 2.76 million jobs were lost in May.

However, Mark Tepper, president and CEO of Strategic Wealth Partners, noted that the latest data on continuing claims for unemployment benefits indicate that “people remained unemployed and didn’t return to work”.

Indeed, CNBC's Jim Cramer suggested that while big businesses may be rebounding, small businesses are still suffering.

“I think we’re looking at a V-shaped recovery in the stock market, and that has almost nothing to do with a V-shaped recovery in the economy,” he said.

Meanwhile, in Europe, the ECB said it would expand its pandemic emergency purchase programme by €600 billion and extend it to June 2021.

Markets rise as economic reopening plans “remain on track”

Markets rose on Wednesday.

The S&P 500 jumped 1.4 percent, the STOXX Europe 600 surged 2.5 percent and the Nikkei 225 rose 1.3 percent.

Analysts at National Australia Bank wrote in a note that investors remain “squarely focused on the prospect of economies reopening supported by COVID-19 stats that broadly speaking continue to suggest reopening plans remain on track”.

However, Nikko Asset Management’s John Vail suggested that “enthusiasm should be dialed down quite a bit for the market”, adding that the upcoming second quarter “earnings warning season” is likely to feature “more negative ones than positive ones”.

Markets rise as COVID-19 crisis “now appear largely under control”

Markets rose on Tuesday.

The S&P 500 rose 0.8 percent, the STOXX Europe 600 jumped 1.6 percent and the Nikkei 225 rose 1.2 percent.

Markets shrugged off civil unrest in the US as investors focused on the prospect of fuller business activity as restrictions imposed to curb the spread of the COVID-19 pandemic are lifted.

“This has largely been about the pace of the economic restart, which appears to be coming online somewhat more quickly than believed to be the case even a month or six weeks ago,” said Bill Northey, senior investment director at US Bank Wealth Management.

“The global health and financial crises now appear to be largely under control,” wrote Joseph Capurso, head of international economics at Commonwealth Bank of Australia, in a note.

Markets rise with better manufacturing PMIs

Markets rose on Monday.

The S&P 500 rose 0.4 percent, the STOXX Europe 600 rose 1.1 percent and the Nikkei 225 rose 0.8 percent.

Recent economic data provide hopeful signs that the global economy has bottomed.

In the US, the Institute for Supply Management said its manufacturing index climbed to 43.1 last month from an 11-year low of 41.5 in April.

IHS Markit’s manufacturing PMI for the euro zone rose to 39.4 in May from 33.4 in April.

The Caixin/Markit manufacturing PMI for China rose to 50.7 in May from 49.4 in April.

The improved economic data come as economies around the world begin re-opening but protests across the US at the death of an unarmed black man at the hands of a white police officer in Minneapolis raised concerns of a resurgence in COVID-19.

Stock market rally at risk from rising US-China tension

Stocks continued to rally last week, with the S&P 500 rising 3 percent to finish the month of May with a 4.5 percent gain.

However, while the re-opening of economies from COVID-19 lockdowns has been boosting markets, a new risk is rising: US-China geopolitical tension.

After repeatedly accusing China of being responsible for the spread of COVID-19, US President Donald Trump raised the ante on Friday by ordering an end to Washington’s special treatment of Hong Kong in response to China's passing of a national security law on the city.

From Reuters:

Some investors said Trump’s move firmly brings back to the fore an issue that had receded earlier this year when Washington and Beijing struck a Phase 1 deal in their months-long battle over trade terms...

“What Hong Kong represents is longer than a one-day or one-year issue,” said Jim Paulsen, chief investment strategist at the Leuthold Group. Paulsen said he believes that geopolitical tensions are likely to hang over markets over the longer term...

[Erin Browne, a portfolio manager at Pimco,] said the tensions may weigh on the Phase 1 trade deal. “While a repeal of the Phase 1 trade deal between the U.S.-China would hurt market sentiment into an important election year for President Trump, the risks of that happening are escalating,” she said.