Peak in COVID-19 could bring “monstrous rally”

The S&P 500 rose 2.5 percent last week.

Markets rose even as COVID-19 cases continued to mount last week. By the weekend, confirmed cases in the US had passed 5 million.

The silver lining in the US COVID-19 situation is that the rate of increase in cases may have peaked after the seven-day average hit 67,902 on 19 July.

A Fundstrat report last week noted that “when cases peaked in late April, it took 20 days before the epicenter stocks started their massive 3,000bp [or 30%] outperformance rally”.

“So if history is an analog, next week is the week we could see a monstrous rally in epicenter stocks,” the report suggested.

However, in his latest commentary, John Hussman, president of Hussman Investment Trust, said that “the pool of infected cases has expanded again, and it remains large enough to keep us teetering right at the edge of a second exponential outbreak”.

He warned that “there’s a growing likelihood that the remainder of the year – if we’re not careful – could bring far larger disruptions than most people seem to envision, and far greater risks than the pain-killing opiates of the Federal Reserve have allowed investors to perceive”.