The sharp stock market rally since the March 23rd lows has possibly run its course. The V-shape recovery narrative is difficult to defend now.

  • First, there is an emerging evidence of pre-mature reopening in US, which increases the chance of the second wave of infections and another lockdown.
  • The Fed acknowledged that the recovery will slower and longer than currently expected by the market.
  • The stock market is overvalued as the PE ratio is near 27, and the recent gains have been fueled by the retail investors pouring stimulus funds into the “zombie companies”.
  • Trump is falling behind in polls, which increases the chances of Biden victory and possible corporate tax increases.
  • The de-globalization trend is underway and the US-China relationship is deteriorating.

The S&P 500 is likely to revisit the key support at the 200dma near the 3000 level. The breakdown below 200dma will confirm the resumption of the bear market.