Market players were in a good mood Monday, as they looked for reasons to believe that the stock market may be looking beyond the coronavirus crisis. While the number of known infections is still far from its peak, there were some signs of slowing in both Italy and New York.
Unemployment claims will surge again this week, but the economic pain of the "stay at home" orders around the country isn't being felt too much just yet. Bills will be coming due on the first of April, but there is hope that the issuance of government checks will help.
Despite the uncertainty, the mood was positive as many of the pundits in the media continued to promote the current action as an exceptional buying opportunity. They are convinced stocks will be higher a year or so from now, so why worry about another dip or a retest of the lows? The fear of missing out overcomes the risk of more downside in the short term.
One issue that is coming into play as we wrap up the month is pension plan allocations. Many pension plans have target allocations. For example, they may want to hold 70% equities and 30% bonds. When equities fall in price and bonds rise, those percentages will change. With the recent fall in prices, many funds will now be underweight equities and will need to add to their positions at the close tomorrow.
There is some talk that some funds may not be making their typical re-allocations because of the volatility, but there is still likely to be buy pressure into the close tomorrow.
Once this allocation business is finished, we will see more natural flow again. I'm not very trustful of this bounce, but we will see what happens as we are hit with more coronavirus, economic and earnings news. Many of those headlines are unlikely to be market-friendly.
If you are new to the market since 2009, you have never really experienced a real bear market. It isn't surprising that many are anticipating a stimulus-induced "V"-shape move. It has worked many times in recent years, so why shouldn't it work again?
Have a good evening. I'll see you tomorrow.