Stocks turn positive as Europe outperforms US


Once again it was lingering concerns over coronavirus that caused the initial drop, before dip buyers stepped in to save the day.



Just like last Monday, when indices gapped lower before rallying into the close, we are seeing a similar price action for major indices yet again:
 
indices
Source: ThinkMarkets
 
Once again it was lingering concerns over coronavirus that caused the initial drop, before dip buyers stepped in to save the day. The latter group of market participants are confident that central banks will be there to provide more stimulus if the economic impact of the pandemic worsens as total infections reached 10 million and the death toll crossed the half-a-million mark. But with the mortality rates declining, there’s also hope that soon we may see some light at the end of what has been a very long tunnel.
 
This explains why the markets have been resilient to the still-rising infections. But in the US, the persistence of the virus is likely to weigh on economic activity further, and investors are finally responding to this by rotating to markets that had previously lagged, namely European stocks.
 
Year-to-date, the tech-heavy Nasdaq is still head and shoulders above the rest, with other US indices also dominating the top 5. European indices are still clustered around the bottom on this time frame:
 
indices year to dateSource: TradingView and ThinkMarkets
 
However, over the past 1-month, the US indices are dominating the bottom in terms relative performance:
 
indices one monthSource: TradingView and ThinkMarkets
 
 
In fact, over the past 5 trading days, the mighty Nasdaq is finding itself in the bottom:
indices 5 days

Source: TradingView and ThinkMarkets
 
Looking at the above charts, sector rotation comes to mind. With the markets holding their own relatively well over the past month despite renewed concerns over a second wave of coronavirus infections, the apparent sector rotation suggests investors are perhaps turning bullish on the wider economy, not just the technology sector. So, if the markets were to extend their gains, non-tech sectors, which had lagged until now, would be the ones to watch out for going forward.



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