Don't Be Fooled by the Stock Market's Rally. Smart Money is Staying on the Sidelines, Crypto Coins News

• Economic warnings are growing louder, but the Dow seems oblivious to the crisis at hand
• Irrational optimism is driving this rally, and smart money has stayed on the sidelines.
• As lockdowns persist and the economic restart proves slower than expected, the market will likely react.

The Dow Jones Industrial Average continued to climb on Tuesday as investors cheered a potential reopening of the US economy and earnings season kicked off. But mounting evidence that this rally is premature suggests the stock market could be in for a crash landing over the next few weeks.

On Tuesday, the International Monetary Fund ( IMF) said it’s expecting the financial crisis caused by coronavirus to rival that of the Great Depression. The organization is expecting the global economy to shrink by 3% this year .

In the IMF believes a partial recovery will begin, but that GDP will likely remain below pre-crisis levels:

A partial recovery is projected for 102324, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with significant uncertainty about the strength of the rebound.

The IMF’s stark warning echos a chorus of other calls for caution as the economic impact of coronavirus continues to deepen.

The World Trade Organization is expecting to see a (-) % contraction in worldwide trade and the Organization for Economic Coordination and Development warned that the economic downturn would be lasting .

Why is the Dow Still Soaring?

The only explanation for the Dow’s apparent immunity to the worsening economic data is a perceived V-shaped recovery . The stock market is still betting on a short, deep downturn followed by a sharp recovery.

Sooner or later, this exuberant rally is going to come back down to earth as reality sets in — we’re in this for the long haul.

Whether the US starts to open up parts of its economy in May or not, consumer activity is unlikely to return to normal levels for at least a few years.

That’s because even if the economy reopens, in the absence of a vaccine the public will still have to adhere to social distancing guidelines. It’s also because the sky-high unemployment figures we’ve been seeing will persist .

Many of the lost jobs reported over the past few weeks came from sectors that aren’t expected to return to normalcy for at least a year, if not more.

Plus, reopening in the absence of a vaccine. is likely to prompt future waves of lockdowns. This weekend, the Federal Reserve’s Neel Kashkari said as much in an interview with CBS.

Kashari expects months worth of rolling shutdowns . Morgan Stanley agreed in an analysis that said a best-case scenario would be intermittent shutdowns over the next year . FAANGs Show Irrational Stock Market Trading

At some point, the stock market will react to the prolonged economic weakness. The Dow’s continued rise is irrational, especially when you look at how particular stocks are faring.

While the wider market paints the picture of a strong, V-shaped recovery , the FAANGs tell a different story. The NYSE FAANG index is up nearly 2% this year despite the coronavirus crash, as big names like Netflix and Amazon see increased demand amid lockdowns.

The performance of the FAANGs suggests traders see lockdowns persisting. | Source:

are clear winners .

Netflix’s stock chart illustrates this point perfectly. Before the pandemic hit, investors were worried about Netflix’s ability to compete as more streaming services came online .

Netflix stock’s meteoric rise illustrates how irrational the dow’s rally has been | Source: Yahoo Finance

Upside Limited as Big Money Stays Out

Nomura Holdings’ Masanari Takada noted that the Fed’s unprecedented intervention likely has a lot to do with the stock market’s stability. He noted that the so-called big money controlled by hedge funds and long-term investors will likely remain sidelined for “some time.”

DM economic indicators continue to fall short of expectations, and government economic policies are causing quite a bit of noise. We therefore think a basic approach to short-term DM equity trading should view this as a mere spontaneous technical rebound

Cash positions near all time highs and extreme levels of pessimism suggest smart money is waiting out the Dow’s false-hope rally. | Source: Bloomberg