Massive US stock bounce stokes doubts, provokes bears

NEW YORK: Investors are treating the U.S. equity market’s blistering rally with a dose of caution, socking away cash, staying on the sidelines or buying insurance against a reversal even as markets scream higher in the midst of the coronavirus pandemic.

Pessimism during rallies is not uncommon, and some argue that markets are more prone to reversals when euphoria predominates. Unprecedented stimulus from the Federal Reserve and U.S. government have been a key factor in boosting investor confidence and alleviating market stresses.But many are worried that the lightning-quick bounce could easily reverse if markets are hit with bad news on any number of fronts, including the efforts of U.S.

“Many promising ... rallies fizzle as the initial euphoria clears and the grim realities of underlying fundamentals come to the fore,” analysts at Societe Generale said in a report studying how stocks have behaved during bear markets over the past 150 years. The S&P's top 20 stocks accounted for 35per cent of its rally, analysts at Goldman Sachs said last month. The price of gold - which tends to draw investors in uncertain times - has risen despite the market's surge.

Robert Phipps, director at Per Stirling Capital Management, is maintaining a 9per cent cash allocation, versus a typical 3per cent to 5per cent.Plenty of investors believe markets have already seen their lows. Michael Wilson, equity strategist at Morgan Stanley, believes"seemingly unlimited central bank support" and fiscal stimulus will bolster equity performance.

At the other end of the spectrum, hedge funds have stayed underweight in equities despite the rally, an analysis by Deutsche Bank found.

Source: News Formal (newsformal.com)

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