S&P 500: Second wave of coronavirus to trigger a correction

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Markets have been ignoring growing signs of a second wave and many other adverse developments. S&P 500, which closed yesterday at 3112.85, may be set to experience a correction move, according to FXStreet’s analyst Yohay Elam. 

See: 

  • S&P 500 Futures climbs toward all-time highs around 3400 – Charles Schwab
  • S&P 500: A pullback is expected – JP Morgan

Key quotes

“The rallying cry from President Trump and others may have also unleashed a second wave of coronavirus. Decisions to loosen restrictions have sometimes been based on economic and political considerations rather than health ones. That may backfire – causing worse health and also devastating economic outcomes.”

“Jerome Powell, Chairman of the Fed, said the bank ‘crossed red lines’ to help the economy. The Fed’s balance sheet ballooned by nearly $3 trillion and some of it went to stocks. Equities have been able to ignore lackluster earnings – already in 2019 – frictions between the US and China, and uncertainty about a path out of the pandemic.”

“Closing for the first time causes hardship but also hopes that once after the effort, things will bounce back. However, an ongoing drag may trigger businesses to wave the white flag and declare bankruptcies. Deteriorating sentiment makes a second wave more devastating than the first one. That may eventually catch up with markets.”

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