Coming into today, the accepted narrative on the roughly 20% move in U.S. equities off the low is that it's little more than technical "re-balancing" or a classic dead-cat bounce in a bear market. With questionable cruise lines and embattled Boeing Co. BA leading the charge, the move does indeed look fragile. But if stocks survive this week, that narrative will have to change, big-time.
The reason recent gains can't yet be ignored is because they came against the backdrop of the first of some very bad incoming data. Namely, the worst jobless report in the history of America. This can't be ignored. Strategists and market commentators have widely agreed that recession is a certainty, and many are painting the picture of a future that looks very different from life that preceded it. But there's more guesswork than quantitative analysis in that.
Still, policymakers at the central bank have been inundating markets with tools to combat instability since early March, and Congress just crafted a relief package and is expected to deliver another shortly behind it. Yet we have no idea the duration of the economic hit.
Because stocks are the most forward-looking asset class, a sustained rally through the next three days of economic data would mean equities are signaling the possibility that instead of burning up in the incoming fire, we may have enough gear to get through it.
Right now, stabilization in stocks despite rising Covid numbers in the U.S. suggests the virus as a news catalyst is running out of surprises. That's good, but it's only step #1. Step #2 is assessing whether the actual economic data has the ability to be a negative shock. So far, despite horrific figures, it has not been.