Investors have suffered a tough start to the second quarter due to the coronavirus pandemic. After climbing 17.9% from its low in the past seven trading days, the S&P 500 kicked off the new quarter with a 4.4% decline.

It seems most of the global fiscal and monetary stimulus measures have been priced in and the things that matter most at this stage are the infection and death rates of Covid-19.

Psychology has a great impact on asset prices, and with more people realizing that the virus could reach them in some way or have already infected someone they know, that’s a good enough reason for explaining why risk assets are unloved.

The upward move in equities we’ve seen over the past week may prove to be a temporary recovery, a dead cat bounce or a bear market rally. Call it whatever you like, but as long as infection rates continue to grow at the current pace, this more or less guarantees weak economic performance going forward and a collapse in earnings.

With global infections likely to reach one million later today and deaths surpassing 50,000, investors are focusing on capital preservation and are looking to return to cash. That suggests another leg lower in equity prices over the next couple of weeks, until investors have a better understanding on how the current crisis will end.

Of course, no one knows with certainty how bad this pandemic will impact global economies and corporate earnings. But it is obvious that corporate buybacks, a major component of the past decade’s bull market, will be missing in 2020 and probably in 2021 depending on how long the crisis persists. These buybacks have been by far the greatest course of demand for stocks since the 2008 crisis.

While some investors may want to take this opportunity of extreme pessimism to begin accumulating stocks, they may soon realize that we haven’t reached the capitulation stage yet. That is when investors surrender or give up trying to recapture lost gains as a result of falling stock prices and is generally considered to be a sign of a bottom in prices.

Today’s US weekly jobless claims release for the week ending March 28 is going to be of more importance than Friday’s non-farm payrolls report. That’s because the NFP will only include data through March 14, so it doesn’t reflect the impact of the last two weeks when millions of Americans filed for unemployment benefits.

Jobless claims may have risen 3 – 5 million in the past week, and we could even see a higher revision of the last week’s 3.28 million print. That suggests April’s NFP may show job losses in 8 digits, which could turn out to be the darkest day ever in the US job market.

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