Stocks slightly lower after Monday’s solid gains

The five-day rally in the S&P 500 Index at 17.4% was the second best in the index’s history, suggesting a pause may be in order. The latest COVID-19 news is focused on whether hotspots, including Italy, Spain, and New York, have seen the worst of the outbreak, while support for a fourth fiscal stimulus package is building. Asian markets got a boost from a much better than expected Chinese Purchasing Managers’ Index (PMI) report, as China’s manufacturing PMI jumped more than 16 points to 52, from a record low of 35.7 in February.

Bear market rallies. Stocks have made quite the turnaround over the past week, with the S&P 500 up more than 17% and the Dow up even more since last Monday. Here’s the catch: Historically, the largest bounces tend to take place during bear markets, otherwise known as bear market rallies. In fact, there have been nine official bear markets since 1950, and we found the average maximum bear market rally was 14.5%. We discuss this important perspective later today on the LPL Research blog.

Low oil prices add to pandemic impact for Texas-area economy. As the nation struggles with the impact of efforts to contain the COVID-19 pandemic, oil producing regions are carrying the added burden of low oil prices. The Dallas Federal Reserve’s gauge of Texas-area manufacturing activity plummeted to a record -70 in March (below 0 represents contraction). Oil prices dropped to an 18-year low Monday as a combination of ramped up Saudi production and declining demand continues to weigh heavily on crude prices.

Our view on equities upgraded. In this week’s Weekly Market Commentary, we discuss why we upgraded our view on equities to overweight from market weight, where it had been since March 2019. As we’ve discussed in our Road to Recovery Playbook, we now have visibility into how bad this recession will be, and the policy response has been sufficient to restore confidence. Although we still haven’t seen a peak in the number of new COVID-19 cases in the United States, we expect that to come within the next two weeks.

 

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