Has The Stock Market Finally Bottomed?

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There’s no doubt that the stock market is still on unstable footing. You don’t need to look any further than Tuesday’s sudden reversal from a near 4% gain to a loss just before the close as a perfect example.

For you football fans out there, Tuesday last-minute reversal at the close was a like a punt on fourth-and-1 in borderline field goal range. But Wednesday’s better-than 3% rise was more significant for the near terms and long term amid the coronavirus pandemic. Indeed, the market was overdue for a big bounce. It nonetheless finally convinced me of two things: The stock market has bottomed and we are now in full-fledged risk-on mode. And if there is any pressure, it will be to the upside.

I suspect I will get emails from several people, proclaiming that the market bottomed last week or the week before. I’ve discussed these moves on numerous occasions, warning about premature celebrations. But this time it’s different. I’ll explain why in a moment.

The Dow Jones Industrial Average on Wednesday climbed 3.44%, or 779.71 points, to close at 23,433.57. As have been the case for much of the Dow’s gains in recent sessions, Boeing (BA) continues to do some heavy lifting, rising 4% Wednesday. As did IBM (IBM). The S&P 500 index climbed 3.41% to 2,749.98, while the tech-heavy Nasdaq Composite which has been an out-performer throughout the downturn rose 2.58% to close at 8,090.90.

Techs were in focus Wednesday, led by the FAANGs — Facebook (FB), Amazon (AMZN) Apple (AAPL), Google (GOOG , GOOGL) — which all closed higher. Meanwhile, Netflix (NFLX), which is the two FAANGs (Amazon being the other) that is higher on a year-to-date basis, declined 0.3%. But it wasn’t just the usual suspects pushing the averages higher.

Travel stocks like Carnival (CCL) and energy stocks like Occidental (OXY) — which have been punished to no end — also participated in the rally, climbing 6%, and 12%, respectively. This tells me that sentiment around coronavirus pandemic has turned favorable, and for good reason. On Wednesday Dr. Anthony Fauci, the director of the National Institute of Allergy and Infectious Diseases, says U.S. should be able to reopen schools in fall.

After this week, the U.S. should see the “beginning of a turnaround,” Fauci said. “How we respond and what kind of a rebound we see or don’t see, I think is going to have a lot of influence probably more immediately on things like summer camps than it does in the fall,” he continued.

In other words, we may have reached the peak of the pandemic, or a “bottom” in terms of worst-case possible outcomes. It’s the only way to interpret, or even entertain, the thought of relaxing restriction on movement. A few weeks ago the market was rallying on reports of fiscal and monetary stimulus, which I didn’t think was an appropriate response to a medical issue. We didn’t know what the damage of the economic fallout will be? Nor did we know what the “E” in P/E ratios would be.

To be sure, we still don’t know the answers to these questions. But this time, I think we’ve bottomed because the director of the National Institute of Allergy and Infectious Diseases is standing at the end of the tunnel and holding a torch, which allows us to make some educated guesses.

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