Market rallies, recession talks and Afterpay’s 198% melt-up

We examine some of the key local and international market moves from the week, current Covid-19 statistics and Afterpay’s recent price action.

'We may well be in a recession,’ said US Fed Chairman Jerome Powell.

Global equity markets seemed to brush off any thoughts of such a disruption this week – maybe once-and-for-all illustrating just how disjointed they can become from economic realities – with US, European and Asian Pacific indices all posting broad gains during the week.

On Tuesday, the Wall Street Journal even ran a story titled:

‘Dow Soars More Than 11% In Biggest One-Day Jump Since 1933.’

Short-term investors surely rejoiced. With good reason too, since its low on Monday, the Dow Jones Industrial Average stormed forward: rising over 3,000 points by Friday’s close; while the S&P 500 did a little worse, finishing out the week 'just' 15.04% higher from its weekly low.

Yet as Bloomberg’s John Authers cautioned:

‘Only two such three-day periods have seen better returns, and both were during the Great Depression.’

Not the best comparison for those seeking reassurance in these uncertain times.

ASX 200 dips back below 5,000

Australia’s blue-chip benchmark proved a tad shakier than its American counterparts this week – from its Monday low to the Friday close the ASX 200 was up about 9.7% – finishing out the week at the 4,842 point level.

Though equity markets seem to be rejoicing at news of government stimulus and aggressive central bank intervention – the economic outlook remains deeply uncertain – with the depth and breadth of the coronavirus impact still difficult to properly quantify.

Indeed, as Macquarie analysts wrote this week, there remains a 'Huge divergence of views on the ultimate societal impact, from doomsday scenarios (i.e. economic reset and winding back excesses) to assumptions that life will remain largely unchanged.’

At the time of writing there were 591,086 cases of Covid-19 across the globe. America even leap-frogged China during the week, with its total case count climbing to 100,972.

Ultimately, the data we are now seeing trickle out speaks to the severity of the unfolding situation. Many analysts for example were predicting that the US would report unemployment figures of around 1.5 million this week. But when the official data was released, jobless claims were than double that, at 3.28 million.

Locally, though official jobs data isn’t due out for about three weeks, there have already been signs of employment stress, with the government’s MyGov website – which is used to access public services such as Centrelink – crashing this week due to elevated levels of web traffic.

Adding to such concerns, Shane Oliver – AMP’s Chief Economist & Head of Investment Strategy – this week wrote that a ‘Recession now looks inevitable.’

‘While there is a huge unknown around how long it will take to control the virus and hence how long the shutdowns will last it is looking clear that the short term hit GDP will be deeper than anything seen in the past WW2 period,’ Mr Oliver further said.

Finally, Macquarie mused that while depressions tend to remake society, recessions by comparison ‘do not alter the fabric of societies. Will COVID-19 radically alter our world?’

Afterpay share price: a wild, bullish week

Speaking to the madness of markets on a more granular level, ASX darling Afterpay this week staged a wild comeback. From its weekly low on Monday of $8.010 per share to its intraday high on Friday of $23.88 per share – the fast-growing company’s share price was at one point up an astounding 198.12%.

Talk about a comeback!

By Friday’s close however APT gave up some of those gains, finishing out the week at just $19.10 per share.

On Wednesday we discussed why Citibank had just slashed its price target on APT and last weekend we even talked about Afterpay’s now likely ‘long forgotten’ crash. Though to be fair Afterpay’s share price is still down by about 50% from its 52-week highs.

Glancing back at those arguments, we noted that although Citi believes Afterpay has the capital to weather the economic storm we are currently facing, the investment bank still expects APT to see its net interest margins squeezed and merchant sales come under pressure in the near-term.

‘We expect uncertainty regarding the extent of decline in consumer discretionary spending (and timing of the recovery) and whether Afterpay can navigate through a credit cycle to be overhangs for the stock over the next 3-6 months,’ Citi said.

Yet with the Afterpay share price almost tripling in a single week, investors appear less worried about such uncertainties it would seem.

Other market news

Elsewhere: oil prices continue to trade around multi-year lows; Citibank slapped Buy ratings on all of the Big Four Banks; Macquarie continues to think FMG, BHP and Rio Tinto will Outperform; oOh!media crashed 27% on Friday, A2 Milk’s share price continues to hold up remarkably well; beleaguered aerospace giant Boeing surged over 60% this week; AMP withdrew its full-year guidance; Woodside Petroleum slashed its expenditures by half; and Qantas secured around $1 billion in debt funding.

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