Qatar National Bank (QNB) said in its weekly analysis that after the shock of the outbreak of the Corona virus (Covid-19) caused investors to enter the fastest selling wave of American stocks ever, the stability of the epidemic and strong economic stimulus led to a noticeable change in the conditions, as The second quarter of this year saw major stock indices, such as S&P 500 and Nasdaq, achieve the best quarterly performance in decades, which reduced most of the previous losses or achieved new record highs in some cases, and the recovery of US stocks contributed to the recovery of other markets and global economic indicators The broader.
The analysis released today indicated that with the United States and other major economies embarking on “reopening” operations that support consumption recovery and employment rates, there is a question about how will vulnerable US assets respond? And will stocks continue to rise for a longer period?
The analysis showed that although appropriate economic response measures are supposed to provide stable support for the United States economy and markets in the medium term, three factors indicate weaknesses in the stock market in the short term.
The first reason noted that despite the strong performance of the S&P 500 and NASDAQ indices, the deeper view “inside the stock market” indicates a completely different picture, while the general market situation was supported by the shares of a handful of companies with a huge market value working in the field of advanced technology and biotechnology , Periodic stocks more affected by real economy changes indicate that the market environment is challenging.
These periodic shares, including those of small market value companies (Russell 2000) and the major companies in the transportation sector (airlines, trucking, maritime transport, railway companies, and delivery companies) whose performance usually leads to long periods of sustainable economic recovery, are currently lagging behind The market is starting to see a slowdown or fall in performance recently.
According to the second reason, the bond and commodity markets that are most vulnerable to macroeconomic factors also send warning signals, US Treasury bond yields remain low and do not indicate any significant recovery in growth or high inflation, and it should be noted that the price ratio between corporate bonds with interest High and long-term government papers are beginning to decline, indicating increased risk aversion by bond investors, and bond markets tend to lead equity markets.
Likewise, commodity markets also indicate a decline. Despite a general recovery in commodity prices, gold, which is a precious metal within safe-haven assets, has begun to outperform cyclical commodities again, which reinforces the tendency to stay away from risk in bond markets. .
He pointed out the third reason that a large group of political, geopolitical and other extremist risks still threaten the global economic situation, making the vulnerable assets vulnerable to sudden heavy sales, and the most important “unknown data” at this stage are the global epidemic path and the possibility of second waves of New cases across different countries and regions.
Additional sources of risk also include trade tensions between major economies, widespread strategic competition between the United States and China, electoral polarization in the United States and the possibility of civil conflicts after a pandemic (Covid-19).
Qatar National Bank concluded its analysis that, in general, US stock markets are now more vulnerable to potential bouts of negative news flow or the emergence of risks, however, the desire and ability of economic authorities to support the market should provide a bond for risky assets .. In the event of turmoil Big Financial Again, the US Federal Reserve and the US Treasury will “do whatever it takes” to avoid a negative downward spiral of lower asset prices, deteriorating balance sheets, and private-sector austerity.