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S&P 500 enters bull market, lockdowns to extend

The mood in markets continues to improve but it’s patchy. Virus cases continue to rise at a rapid clip but markets are extrapolating the data forward and hoping we’re close to a peak.


Asian and European markets are playing catch-up to the rally on Wall Street with a more positive start on Thursday.


It might not feel like it but the S&P 500 just entered a bull market! After rising 3.4% on Wednesday the US equity benchmark is now up 23% from the March low. A rise of over 20% demarks a bull market.


The lockdown extension is a downside risk. The FTSE 100 is pushing higher even as it becomes clear that the UK lockdown will need to be extended. The incapacity of the Prime Minister only heightens the concern that there is just no exit strategy.


Are lockdowns only full eased when virus cases drop to zero? How long will that take? Will testing capabilities and hospital resources be good enough to mean lockdowns can be avoided if there is a second wave?


The number of unanswered questions about the efficacy of lockdown policies tells us this market rally is on borrowed time.


There are reasons again to think US markets will lead the way, be it up or down. European finance leaders can’t get their act together on a united response. And now the US has a little political clarity with Joe Biden the presumptive Democratic nominee for President.


Bernie Sanders has quit the Presidential race. US stock markets got an extra shot in the arm after Senator Bernie Sanders quit the presidential race. As Sanders steps aside, he takes with him the likelihood of much higher corporate taxes and a ‘Medicare for all’ plan that would have decimated US private healthcare companies.


The Pandemic made political campaigning almost impossible so Saunders got sidelined and had no chance to catch-up with Biden who was well ahead in the race. The timing of Sanders’ exit is ironic because America is becoming the most socialist it has ever been. The pandemic has blown up the level of dependence by Americans on government and government money to an extent that it might never return to pre-virus norms. A public health crisis has presumably made a public healthcare system more popular too.


The Saudis and Russians are meeting today to try and hash out a deal. But the big one will be tomorrow when the US gets involved in the G20 meeting of energy ministers. Oil up over 40% now from its 18-year lows. That might sound good but it is still down by over 50% in 2020.


We posed the question after Trump’s tweet about a 10 million barrel per day output cut – “What carrots and sticks did he use?” It looks like it’s more stick. US Congressmen reportedly wrote a letter to the Saudi Crown Prince talking about supporting any “reciprocal response” decided by the White House to the Saudi-initiated price war.


Russia have said they are ready to cut 1.6M barrels per day which is 15% of output but crucially they have rejected the idea that ‘market-based’ cuts to US shale output would count as a US contribution to lower production. The US EIA has said US output will drop by 1.2M barrels per day in 2020/21 as wells go offline because of the lower oil price.


The US ‘stick approach’ has not worked with Moscow on prior occasions. Sanctions are still in place since the annexation of Crimea and there has been zero change in Russian policies. The Russians want Trump’s guarantee that he will force lower shale oil output but that goes against US anti-trust law. It’s really not clear how you square that circle.



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