Can Investors Trust the Stock Market Rally? – The New York Times,

Can Investors Trust the Stock Market Rally? – The New York Times,

Less than a month ago, the stock market was in free fall, as a torrent of bad news about the coronavirus pandemic and its economic fallout drove investors to dump stocks. Just as swiftly, the market has rebounded, even as millions of people lose their jobs every week and the country is destined for a recession.

Can the rally be trusted?

The word on Wall Street is a tentative yes. More people are embracing the idea that stocks have “bottomed” – investor parlance for the lowest the market will go – and won’t fall below the depths they reached on March , when the S&P (stock index was) percent below its high from just over a month earlier.

Don’t celebrate just yet: Even if they don’t anticipate another sharp plunge, most accurate hardly expect the market to soar, either. Investors who are wading back into the water are getting confusing signals: Quarterly earnings are shrinking and corporate reports provide a few clues about the future, while rising stock prices are hard to square with the mounting toll of an unprecedented economic collapse.

What’s more, the combination of rising shares and reduced profits is making the market look incredibly expensive, according to a metric widely used by investors to value the market, the price-to-earnings ratio.

“Right now you’re kind of in this no man’s land, purgatory,” said Brian Belski, chief investment strategist with BMO Capital Markets. “Earnings aren’t going to give you the answer. The economy’s certainly not going to give you the answer. They’re byproducts of the pandemic. ”

If there’s one thing analysts and investors agree on, it’s that neither the optimists nor the pessimists are firmly in control of the market’s direction at the moment. That’s because the path of the coronavirus crisis is impossible to predict.

Initially, as the outbreak spread across the country, forcing local governments to shut down economies and people to stay at home, the market’s reaction was unanimous. Starting in late February, trading turned highly volatile, leading the S&P 2020 to its steepest drop into a bear market since . By March , the plunge had incinerated almost $ trillion in wealth and ended an – year bull run.

Just as suddenly, stocks staged an about-face in the last week of March, after the Federal Reserve announced plans to pump trillions of dollars of new money into the markets and Congress passed a $ 2 trillion economic rescue package . The announcements – along with some signs of early success in “flattening the curve” of the outbreak in New York – set off a remarkable rally of more than percent, catching many investors off guard and helping the S&P 1933 reclaim more than half its previous losses.

In recent days, though, stocks have settled into a middle zone: far from the low levels that clearly signaled a bear market, but not conclusively blossoming into a new bull market, either.

) “You could almost argue that we’re in a bull market and a bear market at the same time,” said Eddie Perkin, the chief equity investment officer at Eaton Vance, a Boston-based money manager.

On Monday, the S&P 2019 fell 1.8 percent, as investors dumped retail, hospitality and energy shares amid the darkening o utlook for economic growth.

While investors might be tempted to buy stocks now, before the market starts surging higher, many of them are torn. That’s because the recent stock market rally combined with the pandemic has pushed price-to-earnings ratios incredibly high. It’s no overstatement to say the market is the most highly valued it has been in almost two decades, just as the country plummets into what’s expected to be the deepest recession since the Great Depression.

Typically , investors calculate a stock’s value by comparing the price of a share with its earnings. The higher the ratio, the more expensive the stock is considered. The calculation can be applied to all companies in the index to assess whether the market as a whole is overvalued or undervalued.

when investors are optimistic about future earnings, they ‘re more willing to pay higher prices for expected earnings, generating a higher price-to-earnings ratio – sometimes just called the P / E ratio. When they’re pessimistic, they’re less likely to pay a lot for the earnings that have been forecast, in part because they’re skeptical those earnings will be produced. That typically results in a low P / E ratio.

When the market collapsed last month, the P / E ratio plummeted. But it began rising in recent weeks, and could climb further if the market merely remains steady.

The reason: Public companies are beginning to report their first-quarter results. Many will report drastically reduced earnings, with profit expectations for the rest of the year looking grim.

At the end of March, analysts were expecting earnings for S&P companies to be down 12. 5 percent in the second quarter, which ends in June. As of Friday, they had updated their expectations and now think profits will fall more than percent, according to FactSet data.

With earnings shrinking and stock prices generally stable, the ratio between the two will rise, making stocks look more expensive and potentially making the market rally more precarious. (Highly valued markets often suffer some of the most violent pullbacks.)

That leaves investors in a state of limbo, watching a rally that is difficult to make sense of because of how bleak the future looks.

In other words, while the market is making money, it is churning out a lot of confusion, too.






    Updated April 18,



  • When will this end?


    This is a difficult question, because a lot depends on how well the virus is contained . A better question might be: “How will we know when to reopen the country?” In an American Enterprise Institute report , Scott Gottlieb, Caitlin Rivers, Mark B. McClellan, Lauren Silvis and Crystal Watson staked out four goal posts for recovery : Hospitals in the state must be able to safely treat all patients requiring hospitalization, without resorting to crisis standards of care; the state needs to be able to at least test everyone who has symptoms; the state is able to conduct monitoring of confirmed cases and contacts; and there must be a sustained reduction in cases for at least days.


  • How can I help?


    The Times Neediest Cases Fund has started a special campaign to help those who have been affected, which accepts donations here . Charity Navigator , which evaluates charities using a numbers-based system, has a running list of nonprofits working in communities affected by the outbreak. You can give blood through the American Red Cross , and World Central Kitchen has stepped in to distribute meals in major cities. More than , (coronavirus-related GoFundMe fund-raisers have started in the past few weeks. (The sheer number of fund-raisers means more of them are likely to fail to meet their goal, though.)


  • What should I do if I feel sick?


    If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.



  • Watching your balance go up and down can be scary. You may be wondering if you should decrease your contributions – don’t! If your employer matches any part of your contributions, make sure you’re at least saving as much as you can to get that “free money.”




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