Starting On A High Note
At least three forces came together to enable all three indices to start the week on a high note. — More on that in the “Overall Market” section.
Beyond the overall market, investors showed confidence in China’s future growth potential and turned their way against a poster child of the COVID-19-induced shelter-in-place living. — More on that in the “What’s Up?” and “What’s Down?” sections.
Oh, by the way, what needs to be true for the stock market rally to continue? — More on that in the “Water Cooler” section.
But, first, here is a recap of what happened in the market yesterday:
- U.S. markets: All three indices ended the last day of the week in the green. Scroll down to the “Overall Market” section to read more.
- Cryptocurrency: Like last week, Bitcoin’s price continues to hover slightly lower than the $10,000 mark.
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Here is a list of everything that could have pushed the stock market up by 2.4% to 3.8% on Monday:
- Reopening of the U.S. economy across several states and sectors,
- The short squeeze of all traders who shorted the stock market based on the last week’s performance,
- The excitement about the positive results of the phase 1 trial of a Covid-19 vaccine by Moderna (Ticker: MRNA).
Whatever the forces were at play, the S&P 500 had its biggest opening in 6 weeks, and the Nasdaq is not in the green territory for the year so far. Will the rally continue? We have some thoughts in the “Water Cooler” section.
Confidence In The Future Of China
So, what happened?
Shares of Baidu (Ticker: BIDU) were up almost 18% on Monday. The company announced its latest quarterly earnings report. Surprisingly, despite the shelter-in-place situation in China, Baidu’s revenue was down by only 7% year-over-year. Additionally, the company reported a drastic increase in the company’s usage metrics such as 28% year over year growth in Baidu App’s daily active users, a 45% jump in, in-app search queries, and a 51% increase in feed time spent. It’s no surprise why investors are excited about Baidu again.
The stock price was hammered before COVID-19 and continued to drop for a while after the start of the COVID-19 pandemic. However, on Friday, the company’s stock saw a sudden large volume of trade, and options contracts followed. The excitement is most likely due to the 49% increase in the U.S. e-commerce sales as a result of the COVID-19 pandemic.
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A Poster Child Of Shelter-In-Place Stock
So, what happened?
Shares of Peloton Interactive (Ticker: PTON) were down more than 9% on Monday. There was no quarterly earnings report to drag the stock down. As the reopening of the economy becomes a reality, stocks that have been the beneficiary of the transition to digital life are losing their momentum. Peloton, the maker of in-home bikes and treadmills, has been enjoying a drastic increase in its revenue as the mass-affluent consumers couldn’t get out of their homes for two months. Now that investors expect normal life to resume, they are kissing the digital life stocks goodbye, at least for now.
Will The Rally Continue?
So what happened here?
Most economists, fund managers, and investors are trying to figure out what needs to be true for a sustained stock market rally. Here are a few logical possible reasons that come to our mind:
- Sustainable growth in the earnings,
- A new drastic policy or stimulus support,
- The stable and consistent reopening of the economy,
- Change in the global economy and more favorable trade policies.
The question is whether you, as an investor, believe the above changes are possible in the coming days and weeks. Otherwise, the market will continue to fluctuate in response to the good or bad news and go sideways, until a few of the above become our new reality.
Share your thoughts and ideas by emailing us at firstname.lastname@example.org.