Markets rise but face “second leg down” as COVID-19 cases surge

Markets rose on Monday.

The S&P 500 jumped 1.6 percent, the STOXX Europe 600 rose 1.6 percent and the Shanghai Composite soared 5.7 percent.

Stocks in the US were boosted by a report from the Institute for Supply Management showing that its service sector index jumped to 57.1 in June from 45.4 in May.

Still, with COVID-19 cases continuing to surge, some analysts warned that the improvement in the economy may not be sustained.

“Over the last few weeks, the COVID situation in the U.S. has worsened significantly to the point where the U.S. is now a notable outlier among advanced economies,” Goldman Sachs chief economist Jan Hatzius wrote in a note.

Hatzius now expects a contraction in 2020 US GDP of 4.6 percent compared to a previous forecast for a 4.2 percent decline.

However, BCA Research chief global strategist Peter Berezin remains confident that markets will be able to shrug off concerns over COVID-19.

“While the pace of reopening will slow, there is little appetite for the sort of extreme lockdown measures that were implemented in March,” he said. “Around the world, both fiscal and monetary policy will remain highly accommodative, which should provide a supportive backdrop for stocks.”

In contrast, financial analyst Gary Shilling thinks there will be “a second leg down” for stocks.