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Boeing stock led the rally with an insane bounce off the relief package for airlines. That’s why the Dow did markedly better than the S&P and some Nasdaq
Investors think the stock market crash might even be over .
In addition to the unprecedented emergency financial relief, China had welcome news for the world Tuesday. Authorities there announced they would lift the lockdown on Wuhan , the epicenter of the pandemic. New cases of coronavirus had been slowing consistently in China, reaching the single digits earlier in the month.
But that doesn’t mean the stock market meltdown is over.
Why the Stock Market Crashed So Quickly
This week’s rally was bigger than the
six
previous bounces since the market crashed in February. That does not mean it will last.
Many economists and financial strategists were stunned and dismayed by how quickly the stock market crashed, and how far it fell from February’s all-time high levels.
The reason why the stock market crashed so drastically is valuations were incredibly frothy by January. That month we noted the perilously high stock prices relative to corporate earnings , alongside record overvaluations relative to GDP .
The coronavirus pandemic – and the worldwide lockdowns to contain it – cut through that tall layer of froth like a hot knife. But there’s still plenty of overvaluation left in the stock market
And unfortunately, that’s in a best-case coronavirus scenario, which is still a wild card.
Corporate Earnings, GDP, & Unemployment
David Rosenberg, chief economist of Rosenberg Research & Associates, said Thursday that the stock market crash is not over – massive rally or not.
(Source:) Twitter
That morning,
But that doesn’t jive with five years of zero growth in corporate profits. The stock market crashed so fast and hard because investors knew valuations didn’t match stagnant earnings. Stock prices were even more misaligned with GDP than before the housing market and dotcom bubbles burst.
The US faces a decline in GDP that Goldman Sachs forecasts to be 2.5 times uglier than the previous historical low. Goldman expects a gut-reeling % plunge in GPD next quarter. Morgan Stanley’s outlook ) is even more brutal.
When those data come in, we’ll see the Buffett Indicator hasn’t settled nearly as low as it looks today . And the next two rounds of corporate earnings reports are going to be a sobering snap-back to reality. Not to mention Earth-shattering unemployment figures .
The stock market will eventually price in those figures. It’s only a matter of time.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com.
This article was edited by Josiah Wilmoth
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