The stock market yo-yo is not over. The spectacular rise in European and American stock markets started after the plunge in March came to an abrupt halt on Thursday. Fears of a second wave of Covid-19 and the anticipation of a long road to economic recovery continued to agitate the markets all day.
CAC40 drops 4.71%
In the United States, Wall Street had its worst session in three months, the Dow Jones yielding 6.90%, the Nasdaq losing 5.27% and the S&P 500 falling by 5.89%. Along the same line, the Paris (-4.71%), Frankfurt (-4.47%) and London (-3.99%) stock markets also had a very bad session. Risk aversion, on the other hand, benefited the bond market, where sovereign debt yields fell sharply. Oil prices plunged almost 8% in New York and London
Markets have a bit of a "hangover feeling after the Fed announcements" on Wednesday, which plans to leave interest rates near zero until 2022, said Andrea Tuéni, analyst at Saxo Bank. "Each time we have a meeting where we just confirm the measures already in place, nothing more, there can be a feeling of disappointment".
The Fed is showering investors' hopes
Above all, the economic projections presented by the American Central Bank (Fed) Wednesday sabotaged the hope of a rapid recovery of the economy, "which could also generate a little disappointment," said the expert. In particular, the Fed forecasts a 6.5% drop in gross domestic product this year before a strong rebound of 5% in 2021 and more modest growth (3.5%) the following year.
"The economy will not emerge from its current hole before 2022. The maximum employment and inflation rate seems out of reach for the next two and a half years," said Vincent Reinhart, strategist at BNY Mellon Investment Management. According to Andrea Tuéni, the Fed's “neither too cautious nor too alarmist” position also served as “an excuse to take profits” after an intense bullish movement. The increase in the number of hospitalizations in several American states, including Texas and North Carolina, also has its share of responsibility in the arbitrations of Thursday.
A dive to qualify
However, "the correction of the day is to be placed in a context that has been extremely virtuous for several sessions", nuance Andrea Tuéni. Last week, the indices experienced a “bullish crash”, based on the deconfinement and the resumption of economic activity. Despite its plunge on Thursday, the Dow Jones thus returned to its level at the end of May and continues to post an increase of more than 35% compared to its low of the year at the end of March.
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