As virus concerns fade, investors worry about a melt-up

NEW YORK: When worries over the coronavirus shook US stocks out of a period of quiet trading last week, investors wondered if the outbreak was the “Black Swan” event that would trigger a sharp decline. Less than a week later, talk has turned instead to a market melt-up.

After that brief swoon, the market recovered, and there were also rallies in Tesla Inc, Bitcoin and other assets often seen as barometers for risk appetite.

The sharp snapback has revived concerns among some investors that market participants are growing overly confident that easy money policies from central banks will underpin prices, despite serious risks to global growth from the coronavirus.

“There could be more downside if the (outbreak) spreads, but for now the trend is still up. The bigger risk is arguably that we end up in a mini-bubble,” said Troy Gayeski — Co-CIO of SkyBridge, an alternative investments firm.

Gayeski said that coming into the year SkyBridge had positioned its portfolio to take advantage of gains by using equity call options.

4%

The S&P 500 stands near a record high after rallying nearly 4 percent from its lows of last week.

“We did put some equity call exposure in the portfolio coming into the year, because if one of the risks is a bubble developing then why not try to participate?“

The S&P 500 stands near a record high after rallying nearly 4 percent from its lows of last week. The Dow Jones Industrial Average and Nasdaq Composite have also hit highs while the CBOE Volatility Index, a gauge of investor anxiety, has drifted lower after spiking last week to its highest in nearly four months.

Michael O’Rourke, chief market strategist at brokerage firm JonesTrading, noted markets have shot

Read More Here...

Bookmark the permalink.

Comments are closed.