U.S. Stocks Point To A Lower Open As Optimism Fades

Chinese Economy Starts To Rebound, Providing Hope To Economies That Continue To Suffer From Lockdowns

S&P 500 futures were pointing to a higher open early in the morning but have lost ground since then and now indicate a roughly 1% premarket loss for the index.

According to China’s official data, the country’s manufacturing index rebounded to 52 in March from the record low of 35.7 in February. The widely watched Caixin Manufacturing PMI Index will be reported on April 1, so the markets will be able to check whether the official data is too optimistic or not.

The markets are eagerly watching how the Chinese economy recovers from lockdown. While the rebound of the official manufacturing index is a good development, investors should keep in mind that this rebound comes from a low base.

Coronavirus Numbers Are Alarming And Put Pressure On S&P 500 Futures

According to data from Johns Hopkins University, U.S. has accumulated 164,610 cases. Italy ranks second with 101,739 cases, while Spain comes third with 94,417 cases. The number of cases in Germany and France has also shown steady upside in recent days.

For the market, this means one thing – continuation of lockdown measures is now almost guaranteed in the biggest Western economies. The key question is whether the massive stimulus from central banks and governments can provide enough support for assets during this turbulent phase.

Other risks include the potential necessity to extend lockdowns, high unemployment and the resulting hit to consumption and consumer morale, as well as spread of the virus outside the major economies.

A Bear Market Rally Or A Start Of A New Upside Trend?

S&P 500 rallied roughly 20% from recent lows and many investors and traders question whether it is the start of a new upside trend or a bear market rally.

Historically, bear markets never ended after just one month, but the current market situation involves an unprecedented cause of the sell-off (a virus) and unprecedented measures to shield the market and the economy from the negative impact of the turmoil (an unlimited QE).

Yesterday, premarket indications were mixed but then buyers managed to drive S&P 500 to a gain of more than 3%. It will be very interesting to see whether the market can get out of the red zone today and continue the previous upside trend.