The US stock market rally has in many ways been befuddling. But there’s no denying that gains – especially in the S&P 500 – have been extraordinary.
The index just notched its strongest 50-day rally of all time as investors opt to look past the risks associated with rising US-China tensions and widespread civil unrest in the United States.
Since March 23, when the index hit its recent low, the S&P 500 has gained 39.6%. That’s the strongest increase ever across 50 trading days, according to Ryan Detrick, senior market strategist at LPL Financial.
“There’s an old market saying that equities take the stairs up and the elevator down, but in the latest market cycle, the elevator up was almost as fast as the way down,” analysts at Bespoke Investment Group told clients.
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Detrick noted on Twitter that stocks were higher both six and 12 months after the seven other largest 50-day rallies. But that happening again is an extremely tough call to make given widespread uncertainty about the trajectory of Covid-19, the lack of guidance on corporate earnings and the fractious US political environment.
“The key in our view is that we do not end up in a negative spiral which is typical of recessions, between weak final demand, falling profits, weak labor market, weak credit markets and low oil [prices],” JPMorgan equity strategist Mislav Matejka said in a note to clients this week. He also noted his concern that the US-China relationship could sour again.
There are signs of rising tensions between Washington and Beijing. The US government said Wednesday that it will block Chinese airlines from flying into the country, claiming that China hasn’t allowed US carriers to resume these routes.
China’s civil aviation regulator on Thursday issued a notice that effectively allows US carriers to resume limited service into the country. But it’s not clear this will be enough for the Trump administration to back down.
The spat highlights the ongoing risks that the US-China relationship could devolve significantly even before the US presidential election. Analysts previously thought that a trade truce struck late last year would at least hold through November.
And for JPMorgan’s Matejka, it’s not the only worry.
“While we were bullish the whole of 2019, and most of the last 10 years, we believe that current risk-reward for equities is not too attractive,” he said.
