Stocks opened higher this morning before giving up their gains by noon. Now, only the Dow (+0.60%) has its head above water while the S&P (-0.15%) and Nasdaq Composite (-1.65%) trade at a loss.
FAANG was particularly wounded during a Big Tech rout that dragged down the rest of the market. Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), and Google-parent company Alphabet (NASDAQ: GOOG), which have been rally leaders over the last few months, all fell at least 0.5%.
Bank stocks, meanwhile, continued surging. The SPDR S&P Bank ETF (NYSE: KBE) rose 3% in response to ongoing reopening efforts in the U.S.
“The market has been making a V-pattern upward and there’s been a tremendous amount of skepticism around that but we are just starting now to see some evidence in the data turning,” Michael Darda, MKM Partners chief market strategist and chief economist, said.
“Some better than expected housing numbers. As reopening gets underway, virtually all states now we are starting to see activity bounce off of very low levels.”
CNBC’s Jim Cramer, on the other hand, believes investors may be overdoing it.
“It’s too ‘happy days are here again,’” the “Mad Money” host said this morning.
“It’s just not going to work like that. Not with 38 million unemployed.”
Cramer explained that while the reopening seems to be going well, there’s no fundamental basis to support the rally extension.
“You can’t keep building on a castle of sand. I see a lot of quicksand underneath some moves,” Cramer said.
“I wish we would just calm down and digest some of these things.”
On the year, the S&P 500 is only down 6%. The Dow, meanwhile, has fallen 11%. The Nasdaq Composite, even following today’s drop, is up 2.5% in 2020.
You’d never know there was a pandemic by looking at stock prices alone.
When reality sinks in about how difficult a full economic recovery will be in the U.S., that “quicksand” Cramer mentioned could swallow up bullish positions in a hurry. Last week, billionaire hedge fund manager David Tepper said that the market is the most overbought it’s ever been, save for 1999, right before the dot com bubble burst.
38 million Americans are unemployed. Many of them won’t be getting their jobs back when lockdown measures are completely removed.
Investors have already priced-in an almost immediate recovery, which could have catastrophic results if the selling gets out of control.
More than anything, the market seems to be motivated by FOMO (fear of missing out) these days, not fundamentals.
Momentum has carried the major indexes to dizzying heights (relative to their COVID-19 lows) in just a few short months as a result. Today, that momentum is dissipating, and stocks are slowing down.
The other side of this “rollercoaster” price action could prove steep enough to make even the most adventurous thrill-seeker’s stomach turn.
That’s not to say that the market will sink past its late March lows, however. So long as a second wave of COVID-19 doesn’t arrive, and the economy continues reopening, American stocks should be able to dig themselves (slowly) out of the rubble.
Provided, of course, that President Trump doesn’t reignite the trade war with China. The White House may announce potential sanctions on Beijing later this week.
And if Trump holds Xi Jinping’s feet to the fire, bulls who bought at the top could end up getting burned as well.
