Traders at the New York Stock Exchange. With global markets still rallying, investors are now increasingly becoming unimpressed as the worldwide pandemic continues to drag on and losses from short selloff spells accumulate. Image Credit: Bloomberg

Dubai: With global markets still rallying, investors are now increasingly becoming unimpressed as the worldwide pandemic continues to drag on and losses from short selloff spells accumulate.

With a rise beyond 20 per cent so far, Wall Street’s benchmark major S&P 500 is en route to its best quarter in more than two decades. While the index usually sets out a trend for markets elsewhere to follow, with global indices tracking gains closely behind, this time it is slightly different.

The S&P 500, being an index that generally outperforms the other markets, was overtaken by other markets - notably Germany’s DAX (up 24 per cent) or Brazil’s Bovespa (up 32 per cent). Meanwhile, the Nasdaq 100 benchmark has broken, for the first time ever, the 10,000-point barrier and is now up a 29 per cent in the quarter to date.

“In such virtually unprecedented context, the investment community should be nothing short of ecstatic; but it is not. Quite the contrary, it could be that it has never been gloomier. But why?” questions Stéphane Barbier de la Serre, macro strategist at Makor Capital Markets.

Don’t blame it on macro

“The blame sure can’t be put on global macro, which has been just constantly above expectations, even the most optimistic ones recently. Of course, after the March-April mayhem, there is certainly some kind of rubber effect at play right. But, still, data has remained very supportive.”

Positive macro developments include better-than-expected manufacturing data coming out of the UK, US, European Union, France, India, Turkey, Brazil and UAE in June, and retail sales bouncing back in Sweden, Australia and Italy, with business and consumer confidence returning to pre-COVID levels for most.

However, a growing threat being faced by a lot of these countries is a renewed surge in new coronavirus infections after economies reopened post lockdowns. Moreover, with the US Federal Reserve earlier painting a rather gloomy picture of prospects of the world’s largest economy, job cuts still rampant, and a definite cure nowhere in sight, there is still cause for concern among investors.

Yearning for earnings

All hope is not lost yet. With another round of company earnings approaching, and analysts expecting to be better this time around when compared to the previous quarter, there is still optimism among some.

“We remain fairly constructive at this stage amid continuously improving global macro dynamics, ever-increasing monetary and fiscal stimulus across both hemispheres and lingering cautiousness all over the investment sphere,” Barbier de la Serre said.

“While economic and social lockdowns have been easing to a large extent, mental lockdowns are still largely in place. That clearly shows in scores of risk indicators like VIX, CDS, gold, haven currencies, etc. But, concomitantly, second-quarter earnings and guidance are likely to surprise on the upside in our view.”

Keep buying dips even now?

“All in all, the main investment takeaway at this juncture on global equities is, keep buying dips altogether,” Barbier de la Serre added.

Markets may have recently sold off in response to a resurgence in COVID-19 cases as local economies begin to re-open, but there are others who too think it’s a buying opportunity, not a reason to retreat.

If new cases don’t significantly strain the health care system, and people don’t lose their nerve and return to hunkering down at home, Evercore ISI’s Dennis DeBusschere expects markets to be in for a “sharp rebound”. In the near term, however, he expects “violently flat markets.”

“A significant COVID second wave would continue to drive asset prices lower, but with vaccine development continuing, little correlation between economic re-openings and increased case growth and hospitalization data,” investors should consider dips as a buying opportunity, DeBusschere wrote in a note.