Don't be fooled the Dow can continue to fall

The Dow Jones Industrial Average (DJI) has risen by more than 22% in less than a week, but not all analysts are convinced that the market has hit its bottom.

In less than two months the stock market dropped 38% and that was before the United States had thousands of Coronavirus cases. Now, New York City is on lockdown, unemployment claims are hitting all time highs, and in the midst of it all the Dow is soaring. Some investors believe that Fed relief and stimulus will boost the economy, but is it enough?

"The truth is the market is going to bottom when the number of cases starts to peak," said Jonathan Golub, chief U.S. market strategist at Credit Suisse. The U.S. currently has over 120,000 cases, which is double the amount of cases in less than a week.

A top infectious disease expert in the U.S. claims that he expects there to be at least 100,000 deaths in the U.S. "Whenever the models come in, they give a worst-case scenario and a best-case scenario. Generally, the reality is somewhere in the middle. I've never seen a model of the diseases that I've dealt with where the worst case actually came out. They always overshoot," Dr. Anthony Fauci, a key member of the White House's coronavirus task force, told CNN's Jake Tapper on "State of the Union."

"I mean, looking at what we're seeing now, you know, I would say between 100 and 200,000 (deaths). But I don't want to be held to that," he said.

Up to now, the market has free fallen because of Covid-19. It stands to reason there won't be a bottom insight until cases peak, which according to Dr. Facui, isn't in the near future.

Market data analysis

Robert Sluymer technical strategist at Fundstrat wrote, "extreme selling pressure and market structure stress that developed in March is likely subsiding and an internal low has likely developed." Sluymer continued to write that, it’s premature to conclude the final lows are in for the market, a bottoming process has likely begun, and we expect to see more positive divergences developing into late April and mid Q2 consistent with a bottom in our intermediate-term indicators.”

Many stocks have hit their 52-week lows in the past month, so Sluymer considers the market to be near bottom and a good time to invest.

A list of notable stocks that have hit their 52-week lows are:

  • Toyota (TM)

  • Disney (Dis)

  • Starbucks (SBUX)

  • Match Group (MTCH)

  • Facebook (FB)

Strategists at JPMorgan also agree with Sluymer and say the market has been oversold. They believe the overselling could ultimately reverse the market and there could be a sharp increase in buying.

Golub and economists aren't as optimistic as Sluymer and those at JPMorgan. Economists have widely agreed that the U.S. has entered a recession and it will only get worse as more cities and states lockdown.

Covid-19 started a recession but may not end it

The future is easy to tell after it's already happened. Golub believes the market will start to bottom when cases start to peak, but what about the after effects?

The U.S. department of labor recorded that 3.3 million people have filed for unemployment since the Covid-19 breakout.

“This morning’s jobless claims confirm that the United States is in the thralls of a catastrophic unemployment crisis, the likes of which we haven’t seen since the Great Depression,” said Andrew Stettner, senior fellow at the Century Foundation thinktank.

People have been struck with fear because of Covid-19, but now that fear is being replaced by stress and anxiety. People don't know how they're going to pay bills, or where their next paycheck will come from. Morgan Stanley has estimated that unemployment will average 12.8% by the time the virus is controlled. During the 2008 recession, unemployment climbed to 10.1% and that was catastrophic.

Covid-19 may have started an economic recession, but its economic side effects may be felt in financial markets long after the number of cases has dwindled.

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DISCLAIMER: This site article does not contain financial advice. Any and all market analysis is solely the authors opinion.