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Rising Tide ...

Updated: Jun 21, 2020

Stock markets are in good humour, on the back of some surprisingly good US jobs report which made a mockery of forecasts, reporting a gain of 2.5million jobs compared to a consensus estimate of a decline of 8million. Oil prices got a leg-up after OPEC+ agreed to an extension in production cuts by another month. Indian markets are taking continuous cues from the Dow & Nasdaq!! Also, the US Fed Chair Powell told the world that the Fed would not hold back monetary stimulus because asset prices are high, adding fuel to the fire.

Investors have been pondering over whether the recovery will be V, U, L-shaped and so far the consensus has been it’s difficult to predict, given we know so little about the COVID-19 pandemic even now. Everyone is asking if the US jobs data points to a quicker than expected recovery among businesses and investors could then lean a bit more towards a V-shaped recovery. See the Nasdaq chart and you will see the V-shaped recovery in its components!!

The news about the global economy continues to be gloomy, with the World Bank forecasting the deepest recession since the Second World War. The saving grace is that it expects a rebound next year. Back home, S&P retained India’s sovereign rating at the bottom rung of the investment grade, with a stable outlook. It sees consumption as practically the sole driver of growth over the next few years. The return of investment demand is likely to take quite some time.

So how do you explain the market going high this past week?

Dhirendra Kumar of Value Research says, "As far as I can figure out, there is still going to be a business and economic disaster, but given some indicators that are now visible, everyone seems to have built up hope that the disaster will be slightly less disastrous than what it looked like a couple of months back. Maybe they are right, or maybe they are wrong".

I have been investing in the markets for 3 decades and I have never been able to understand short term moves. I can't understand why the markets esp the Indian markets have gone up in April & May. It is pointless to say that the March crash was overdone and therefore the April/May rally was due. My answer to all such logic is to ask a simple counterquestion, "How would anyone know? What additional information do we have today that we ?"didn't have in March?"

No one knows and it is utterly self-evident that we are in completely uncharted waters at every level from a small neighbourhood business all the way up to the global economy. As of now, we are still a long way off from decisively overcoming the virus. Volatility looks certain for the next few months. Keep your eye on your goals and asset allocations and stay safe.

Source: Value Research, Moneycontrol

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