“These two factors may be driving the stock market’s double-digit gains this week, says JP Morgan strategist.
Investors have thanked the imminent passage of a $2 trillion fiscal stimulus bill for driving the U.S. stock-market’s double-digit percentage gains this week, but one strategist at JP Morgan says the rally’s underpinnings are less driven by economic and political fundamentals than market pundits would allow.
The initial stage of the rally is driven by short-covering and rebalancing,” said Nikolaos Panigirtzoglou, a global market strategist at JP Morgan JPM, +6.96% , in an interview.
The analyst said the stock-market’s recovery from the damage done by the coronavirus pandemic will be first driven by market participants who have to buy equities regardless of what they envision for the U.S. economy’s path.
Pension funds and so-called balanced mutual funds need to start re-jigging their portfolios in favor of stocks as the selloff in equities and rally in government bonds has driven down the value of their equity relative to their bond positions. Commodity trading advisors and long-short equity hedge funds have also had to cover their short bets on stocks.”
We have also written about this short squeeze scenario. Rebalancing and the FOMO effect are also reasons for this stock market rally. Stock investing and stock trading are both risky, and the recent selloff and stock market rally has made stocks even riskier financial assets. The bottom in the stock market and the top are always almost impossible to tell.
An example of a short squeeze that has made impressive short-term gains for a stock is Boeing stock. Boeing stock has doubled in less than a week.
From the low stock price of about $90 shares of Boeing are now at $180.55, at close on March 26, 2020.