Wednesday's Market Minute: Stocks Won The First Battle In The Second Virus War

The U.S. stock market is passing its first big test since March with impressive ease. Bulls fought tooth and nail after last week's sharp sell-off to hold S&P 3,000 and then rally. They did it by buying up companies tied to the economic recovery. But that's just the first big battle in the war that's taking shape right now. Just like at the beginning of this year's chaos, the virus is the enemy. But this time around, things are a bit different, and Covid-19 is more well understood. I wrote in this column on April 9 that the virus was running out of surprises and that its potential as a negative catalyst was waning. It's now coming back.

Beijing is going through a mini-lockdown, U.S. states that were early to reopen are having flare-ups, and Norwegian Cruise Line just extended cancellations through September. At the same time, doctors know how to treat the virus better, scientists are preparing for a vaccine, and people presumably still know the social-distancing drill. It stands to reason the virus still has less potential for shock and awe than it did at the onset.

But markets are fragile, as we have seen the last week, and investors are flying blind without any clarity on corporate earnings. The bumps from the virus can be significant, but the stock market trend also has a big lingering catalyst: record levels of cash in ready to put to work in money-market funds, Treasury ETFs, and mattress money. If the coast starts to look clear, the sky is the limit for risk assets. We may not have to wait long: protests around the world began in June, and the incubation period for those potentially infected should be upon us as we speak.

Photo by Alec Favale on Unsplash