Opposing forces hit stocks on Thursday.
The major averages closed sharply higher after a late-day surge, capping off a mixed trading session that grappled with rising coronavirus case counts in reopened states such as Texas, which said it would pause its efforts to try to stem the spread.
U.S. stocks initially rose after banking regulators said they would ease some restrictions put in place after the 2007-2009 financial crisis, sparking an upward move in bank stocks that continued in the afternoon bounce.
Here's what five market watchers had to say about Thursday's action:
Former Federal Deposit Insurance Corporation Chair Sheila Bair said the bank regulators' moves were "ill-advised":
"I think they're significantly in the direction of deregulation. That's kind of been the glide path we've been on for several years now, which I think directionally is the wrong way, and we're paying for it now in terms of what we could have: larger capacity for banks to deal with the current pandemic. These two specific proposals I think are ill-advised, especially as a former chair of the FDIC. It won't surprise you to hear me say that that $40 billion that will no longer be in banks to protect them against derivatives exposures that their affiliates are imposing on them is no longer there. I think that imperils, increases risk to the deposit insurance funds. So, I do think that's ill-advised. And the Volcker Rule, they've been loosening that for years now. It's been under constant assault. This, as I understand it, the rule change basically defers to banks to decide what's proprietary or not. We went down that road with risk-based capital, in case you remember. We were basically letting banks decide how much capital they should have prior to the great financial crisis. So, been there, done that in a different context. It's not a good idea. So, I think very disappointing, but it is what it is. I'm getting used to it with the current — I respect all of them, but I think they are directionally so going the wrong way on all of this."
Charlie McElligott, managing director and head of cross-asset strategy at Nomura, said historical trading patterns support this week being a volatile one for stocks:
"There, without question, is a very pronounced seasonality into June trading in the S&P. And this has been for the last 25 years, more or less, as volatility became an asset class, as volatility became an input to determine institutional investor exposures. And as that has correlated to this kind of reopening economic-trajectory feel-good trade over the past one month, what the phenomenon really pivots around is the June options expiration, which is ... one of the four serial options expirations over the course of the year. It's quarterly. And, certainly in light of the past quarter's chaotic trading environment, it was a very big one. And what you end up seeing, then, over this past 25-year period, especially on a trade up into the June options expiration, is a really well-documented phenomenon where the week and, actually, the two-week period thereafter — after the options expiration, which for the VIX … was last Wednesday [and] for ETF, index and singles ... was last Friday — trade down. And we're talking about over the last 27 years, 26 years. When the S&P has been up over one month into the options expiration, the following week thereafter, which is this week, the S&P's only up 12% of the time, and there are a number of inputs into that."
Tina Byles Williams, founder and CEO of Xponance, figured the odds of another full-blown, worldwide lockdown were low:
"I think we'll continue to see kind of rolling Ws, if you will, localized Ws, within the economy. I will note that some of the more serious case increases are in the emerging markets such as Brazil, India and Mexico. But I will also say that if you look at Sweden and Iran, [they] provide an interesting case study where they are clearly beginning to see a second wave of cases, but death rates are actually not increasing at the same level as the first wave. And I think that's in part because we've learned to isolate the vulnerable better, improve our reaction times and have imposed better therapeutic measures. And so, the likelihood of another global lockdown, I think, is low, but it does challenge the notion of a V-shaped recovery."
Bob Doll, chief equity strategist at Nuveen, said the market was "still a little ahead of itself":
"I think ... that the Covid data remains the most important set of data points. When you get these worries about flare-up as we've seen in the last 48 hours, the market is red. And another couple of days where it's kind of quiet and maybe there's rumors of a therapeutic or a vaccine making progress, the market's up. That's the main story, and behind that, of course, is the economic story, which is almost as important. But this is not going to be straight up. Off the shutdown of the economy, we've seen a lot of good news as a lot of data moved from very low to less low, but the increase was impressive and the markets liked that. It's not going to be a straight line and we'll have bumps along the way. I would buy the bumps, but the market's still a little ahead of itself in my view."
Elizabeth Burton, chief investment officer of the Hawaii Employees' Retirement System, questioned whether stocks should be where they are given the abounding uncertainty:
"When I ... originally got asked to come on this show, I had said that the equity markets and credit markets seemed to be telling two different stories. At least as of yesterday, it looks a little bit like maybe the equity markets are getting on the same page. But what's interesting is why the market actually is as strong as it is given where the economy is. ... Essentially, if you think about where the levels are, I realize that equity project out into the future, but are we saying that the world is as good now as it was in February? I don't know. The data that's emerging on that is kind of mixed, so only time will tell, but I think we're definitely in a dislocation, certainly between Main Street and the markets."