Stocks dropped sharply on Thursday as investors worry about a second coronavirus wave.
Covid-19 cases are spiking in some states that have reopened businesses after lockdowns.
Five experts weigh in.
Jim Cramer, host of CNBC's "Mad Money," says enthusiasm over beaten-down stocks may have led to overheating.
"I think it's fine to give back some of the gains. You saw the way Apple spiked yesterday, Nvidia spiked. These are good companies, but their shares, I think, just got ahead of themselves a little. Yesterday we did have the most important guru in the market, and I'm not exaggerating, David Portnoy — who is my friend from Barstool. He said, 'Look, I'm just printing money. Why take profits when every airline goes up 20% every day? Losers take profits, winners push the chips to the middle. I should be up a billion dollars.' ... And of course he was criticizing Warren Buffett ... saying that he unloaded the airlines' stocks at the wrong time. So, I mean, I think that there was some strength in these stocks, in the airline stocks, in the small retail stocks, in the oil stocks, let's just say all the travel/leisure, the cruise stocks, and they were all kind of emanating from people who had a very similar ethos to Dave. And I think that what happens is those get overheated."
Dan Niles, founding partner of AlphaOne, says the disconnect between the markets and economy may have contributed to the pullback.
"You step back from all this and you sort of think: Does it make sense to you? The S&P was up year to date with 13% unemployment. That's what doesn't make sense. So, you know, to have some of these stocks give back, that definitely is what should be happening, because the valuations right now are at record levels, and so that just gives you a sense of where risk is."
Paul Zemsky, CIO of Voya Investment Management, does not see a major pullback on the cards.
"I really don't think we're heading for a 50% retracement, but the market is up 45% from the bottom here in the S&P. That's a really big move. It's perfectly natural to have a retracement. A 10% retracement from here will take us back to 2,900. And that was where we were in mid-May, so less than a month ago where 2,900 we would have been really happy to get here, so it's perfectly normal to have a retracement after a rally like this."
Paul Hickey, co-founder of Bespoke, is watching the timing of stock market moves.
"Virtually all the market's gains have come during the overnight session of trading, and it makes sense when you think about it because investors are taking the overnight risk. There should be no premium to equities or no extra compensation to hold equities during the day because you can always get out of that ... holding position overnight where investors have been rewarded for taking on that risk. The reason they take on that risk and are compensated for it is for reasons like we saw in February and March, when good or bad news tends to happen in after-hours trading, and it happened in a big way in February and March."
Jon Hill, vice president of U.S. rates strategy at BMO Capital Markets, is breaking down the certain from the uncertain.
"One of the things about this moment is things are so uncertain. They're uncertain both in terms of how the Fed will react, they're uncertain in terms of whether there'll be a second wave, whether there'll be another fiscal program. But even though there are some uncertainties, there are some things we know for sure. There are some certainties. And I agree wholeheartedly that we should expect continued support for asset prices, continued support for the economy, just simply because that's the way our political system works, that's the way our monetary system works."
