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| Can Investors Trust the Stock Market Rally? | Can Investors Trust the Stock Market Rally? |
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| Less than a month ago, the stock market was in free fall, as a torrent of bad news about the coronavirus pandemic and its economic fallout drove investors to dump stocks. Just as swiftly, the market has rebounded, even as millions of people lose their jobs every week and the country is destined for a recession. | Less than a month ago, the stock market was in free fall, as a torrent of bad news about the coronavirus pandemic and its economic fallout drove investors to dump stocks. Just as swiftly, the market has rebounded, even as millions of people lose their jobs every week and the country is destined for a recession. |
| Can the rally be trusted? | Can the rally be trusted? |
| The word on Wall Street is a tentative yes. More people are embracing the idea that stocks have “bottomed” — investor parlance for the lowest the market will go — and won’t fall below the depths they reached on March 23, when the S&P 500 stock index was 34 percent below its high from just over a month earlier. | The word on Wall Street is a tentative yes. More people are embracing the idea that stocks have “bottomed” — investor parlance for the lowest the market will go — and won’t fall below the depths they reached on March 23, when the S&P 500 stock index was 34 percent below its high from just over a month earlier. |
| Don’t celebrate just yet: Even if they don’t anticipate another sharp plunge, most observers hardly expect the market to soar, either. Investors who are wading back into the water are getting confusing signals: Quarterly earnings are shrinking and corporate reports provide few clues about the future, while rising stock prices are hard to square with the mounting toll of an unprecedented economic collapse. | Don’t celebrate just yet: Even if they don’t anticipate another sharp plunge, most observers hardly expect the market to soar, either. Investors who are wading back into the water are getting confusing signals: Quarterly earnings are shrinking and corporate reports provide few clues about the future, while rising stock prices are hard to square with the mounting toll of an unprecedented economic collapse. |
| What’s more, the combination of rising shares and reduced profits is making the market look incredibly expensive, according to a metric widely used by investors to value the market, the price-to-earnings ratio. | What’s more, the combination of rising shares and reduced profits is making the market look incredibly expensive, according to a metric widely used by investors to value the market, the price-to-earnings ratio. |
| “Right now you’re kind of in this no man’s land, purgatory,” said Brian Belski, chief investment strategist with BMO Capital Markets. “Earnings aren’t going to give you the answer. The economy’s certainly not going to give you the answer. They’re byproducts of the pandemic.” | “Right now you’re kind of in this no man’s land, purgatory,” said Brian Belski, chief investment strategist with BMO Capital Markets. “Earnings aren’t going to give you the answer. The economy’s certainly not going to give you the answer. They’re byproducts of the pandemic.” |
| If there’s one thing analysts and investors agree on, it’s that neither the optimists nor the pessimists are firmly in control of the market’s direction at the moment. That’s because the path of the coronavirus crisis is impossible to predict. | If there’s one thing analysts and investors agree on, it’s that neither the optimists nor the pessimists are firmly in control of the market’s direction at the moment. That’s because the path of the coronavirus crisis is impossible to predict. |
| Initially, as the outbreak spread across the country, forcing local governments to shut down economies and people to stay at home, the market’s reaction was unanimous. Starting in late February, trading turned highly volatile, leading the S&P 500 to its steepest drop into a bear market since 1933. By March 23, the plunge had incinerated almost $10 trillion in wealth and ended an 11-year bull run. | Initially, as the outbreak spread across the country, forcing local governments to shut down economies and people to stay at home, the market’s reaction was unanimous. Starting in late February, trading turned highly volatile, leading the S&P 500 to its steepest drop into a bear market since 1933. By March 23, the plunge had incinerated almost $10 trillion in wealth and ended an 11-year bull run. |
| Just as suddenly, stocks staged an about-face in the last week of March, after the Federal Reserve announced plans to pump trillions of dollars of new money into the markets and Congress passed a $2 trillion economic rescue package. The announcements — along with some signs of early success in “flattening the curve” of the outbreak in New York — set off a remarkable rally of more than 25 percent, catching many investors off guard and helping the S&P 500 reclaim more than half its previous losses. | Just as suddenly, stocks staged an about-face in the last week of March, after the Federal Reserve announced plans to pump trillions of dollars of new money into the markets and Congress passed a $2 trillion economic rescue package. The announcements — along with some signs of early success in “flattening the curve” of the outbreak in New York — set off a remarkable rally of more than 25 percent, catching many investors off guard and helping the S&P 500 reclaim more than half its previous losses. |
| In recent days, though, stocks have settled into a middle zone: far from the low levels that clearly signaled a bear market, but not conclusively blossoming into a new bull market, either. | In recent days, though, stocks have settled into a middle zone: far from the low levels that clearly signaled a bear market, but not conclusively blossoming into a new bull market, either. |
| “You could almost argue that we’re in a bull market and a bear market at the same time,” said Eddie Perkin, the chief equity investment officer at Eaton Vance, a Boston-based money manager. | “You could almost argue that we’re in a bull market and a bear market at the same time,” said Eddie Perkin, the chief equity investment officer at Eaton Vance, a Boston-based money manager. |
| On Monday, the S&P 500 fell 1.8 percent, as investors dumped retail, hospitality and energy shares amid the darkening outlook for economic growth. | On Monday, the S&P 500 fell 1.8 percent, as investors dumped retail, hospitality and energy shares amid the darkening outlook for economic growth. |
| While investors might be tempted to buy stocks now, before the market starts surging higher, many of them are torn. That’s because the recent stock market rally combined with the pandemic has pushed price-to-earnings ratios incredibly high. It’s no overstatement to say the market is the most highly valued it has been in almost two decades, just as the country plummets into what’s expected to be the deepest recession since the Great Depression. | While investors might be tempted to buy stocks now, before the market starts surging higher, many of them are torn. That’s because the recent stock market rally combined with the pandemic has pushed price-to-earnings ratios incredibly high. It’s no overstatement to say the market is the most highly valued it has been in almost two decades, just as the country plummets into what’s expected to be the deepest recession since the Great Depression. |
| Typically, investors calculate a stock’s value by comparing the price of a share with its earnings. The higher the ratio, the more expensive the stock is considered. The calculation can be applied to all 500 companies in the index to assess whether the market as a whole is overvalued or undervalued. | Typically, investors calculate a stock’s value by comparing the price of a share with its earnings. The higher the ratio, the more expensive the stock is considered. The calculation can be applied to all 500 companies in the index to assess whether the market as a whole is overvalued or undervalued. |
| When investors are optimistic about future earnings, they’re more willing to pay higher prices for expected earnings, generating a higher price-to-earnings ratio — sometimes just called the P/E ratio. When they’re pessimistic, they’re less likely to pay a lot for the earnings that have been forecast, in part because they’re skeptical those earnings will be produced. That typically results in a low P/E ratio. | When investors are optimistic about future earnings, they’re more willing to pay higher prices for expected earnings, generating a higher price-to-earnings ratio — sometimes just called the P/E ratio. When they’re pessimistic, they’re less likely to pay a lot for the earnings that have been forecast, in part because they’re skeptical those earnings will be produced. That typically results in a low P/E ratio. |
| Updated June 5, 2020 | Updated June 5, 2020 |
| So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | |
| A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
| The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. |
| Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. | Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission. |
| Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home. | Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home. |
| States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. | States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. | Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications. |
| The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. | The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing. |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. | If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested. |
| When the market collapsed last month, the P/E ratio plummeted. But it began rising in recent weeks, and could climb further if the market merely remains steady. | When the market collapsed last month, the P/E ratio plummeted. But it began rising in recent weeks, and could climb further if the market merely remains steady. |
| The reason: Public companies are beginning to report their first-quarter results. Many will report drastically reduced earnings, with profit expectations for the rest of the year looking grim. | The reason: Public companies are beginning to report their first-quarter results. Many will report drastically reduced earnings, with profit expectations for the rest of the year looking grim. |
| At the end of March, analysts were expecting earnings for S&P 500 companies to be down 10.5 percent in the second quarter, which ends in June. As of Friday, they had updated their expectations and now think profits will fall more than 25 percent, according to FactSet data. | At the end of March, analysts were expecting earnings for S&P 500 companies to be down 10.5 percent in the second quarter, which ends in June. As of Friday, they had updated their expectations and now think profits will fall more than 25 percent, according to FactSet data. |
| With earnings shrinking and stock prices generally stable, the ratio between the two will rise, making stocks look more expensive and potentially making the market rally more precarious. (Highly valued markets often suffer some of the most violent pullbacks.) | With earnings shrinking and stock prices generally stable, the ratio between the two will rise, making stocks look more expensive and potentially making the market rally more precarious. (Highly valued markets often suffer some of the most violent pullbacks.) |
| That leaves investors in a state of limbo, watching a rally that is difficult to make sense of because of how bleak the future looks. | That leaves investors in a state of limbo, watching a rally that is difficult to make sense of because of how bleak the future looks. |
| In other words, while the market is making money, it is churning out a lot of confusion, too. | In other words, while the market is making money, it is churning out a lot of confusion, too. |