- The Dow Jones Industrial Average is set to open with a 800 – point increase, but it has three components of a dead cat bounce.
- Record outflows from asset managers are still being recorded, while the coronavirus outbreak in the US is not slowing down.
- With California under lockdown and cases increasing, selling pressure on the market is unlikely to subside.
The Dow Jones Industrial Average (DJIA) is set to open with a -point upsurge, down from its initial 1, – point rise. But, it is showing three key components of a dead cat bounce, as fear towards coronavirus fails to subside .
# 1: The Dow Jones rising from stimulus is not positive
The Federal Reserve is aggressively moving towards easing monetary policies
, following its statement that it will not hold back on releasing fresh stimulus to recover business sentiment and productivity.
While stimulus can slow down the downtrend of the market, it cannot save it for a simple reason that the stock market correction was triggered by the coronavirus pandemic in the first place.
The only major factor that could refuel the appetite of investors towards stocks and other high-risk assets is a significant reduction in new coronavirus cases.
The stock markets of China and South Korea have started to rebound as the curve of new cases began to flatten.
With California officially going into lockdown after governor Gavin Newsom asked million residents in the state to stay home, the US is still at an early phase of a coronavirus outbreak.
The market could temporarily react to new stimulus from central banks in Europe and the US , but they are just that, a temporary measure to a larger problem at hand.
# 2: Record high outflows from investment firms
Since March , asset managers have been rattled by the amount of capital that has left asset managers worldwide, especially in the US and Europe.
Prior to the severe sell-off of the Dow Jones on March
As investors frantically move their money out of both single stocks and even bonds, the Dow Jones and European equities need a stronger floor to initiate an extended rally in the near-term.
# 3: Coronavirus is showing no signs of slowing down
The increase in clinical testing of potential cures for coronavirus is restoring confidence that the US could soon see the peak of the virus , like China, Singapore, South Korea, and Vietnam.
But, the main problem of lackluster coronavirus testing in the US
remains remains. Hospitals have also started to report a shortage of ventilators, which are critical in supporting patients suffering from the virus. US begins to move towards testing more people, the number of confirmed coronavirus cases is increasing increasing. When South Korea initially surpassed , (coronavirus cases, it was the most infected country outside of China
(This article was edited by Samburaj Das .
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