S&P 500: Five factors to stop the recovery

Five factors are boosting S&P 500 to a remarkable rally from the lows, but all may prove ephemeral, and stocks may turn back down, according to FXStreet’s analyst Yohay Elam.

Key quotes

“The Fed has thrown the kitchen sink, buying debt of ‘fallen angels,’ junk bonds, and also expanded its purchase of municipal debt. It may have reached its limits, and without a further supply of Fed funds, shares may turn south.”

“Without imminent new stimulus in the face of a worsening economic situation, investors may shy away. The government may always directly buy stocks, but that remains a remote option.” 

“Fear from coronavirus carnage may have been exaggerated, but also greed in light of fiscal and monetary stimulus may have gone too far. Markets tend to overreact in both directions. As the dust settles and the depth of the damage is realized, the pendulum may swing lower.”

“The momentum may reverse sooner than later, and stronger stocks may be carried down the majority of weaker ones.”

“A second shelter-in-place order is far worse than extending existing limits to movement as it may deal a blow to consumer and business confidence.”