E US Stock Market Weekly Review April 13- April 17, 2020

A second consecutive week with gains for all major US stock indexes despite weak economic releases makes a recent article posted on Yahoo Finance titled “The stock market wants to embarrass the experts” an interesting one. The article has compelling arguments such as the following ones:

“The rebound comes despite a backdrop of weekly unemployment claims in the millions, a historic plunge in retail sales, and the biggest drop in manufacturing since 1946. Goldman Sachs predicts GDP in the U.S. will shrink a whopping 24% in the 2nd quarter, and rebound in the 3rd and 4th quarter.

Over the past weeks, analysts and investors have warned we are not in the clear yet and to watch out for a ‘bear market trap.

So many strategists are calling for a retest that Mr. Market will try to embarrass the greatest number of strategists at any one point in time,”.

However, we disagree with the main title. The financial news is not good, the stock market is now being driven on hopes and positive momentum about the latest news about the coronavirus contamination developments and news about reopening the US economy in early May 2020. When the stock market participants will start wondering about the current stock prices and their valuation another selloff may occur. And while no one can predict the magnitude of this potential stock market correction, the fact that major US banks have made credit reserves and have warned about the future recession of the US economy makes us believe that another stock market correction is highly likely.

Another key theme during the week of April 13- April 17, 2020, was the collapse of oil prices. On Friday, April 17, 2020, the crude oil prices closed at $18.12, -1.75(-8.81%) despite an agreement reached by global producers to reduce the output. While the low oil prices are bad news for the producers of oil, it is very positive news especially for the companies which can hedge and lock low oil prices for a long period, as this move will have a significant impact on their costs and profitability.

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Disclosure: I have no position in any stock mentioned

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