The stock market rally is running out of steam

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The rally in US stocks lost its strength late Monday afternoon, abandoning previous gains despite signs of a slowdown in the spread of the coronavirus.

The S&P 500 closed down 0.2%, wiping out a more than 3% rally earlier today, while the technology-intensive Dow Jones Industrial Average and Nasdaq Composite fell by a similar amount.

It was a change from the more bullish sentiment seen on Monday when the S&P 500 climbed 7% for its best day in two weeks.

Investors were encouraged by signs that wide-ranging traffic restrictions in the United States and Europe have proven effective in slowing the spread of the coronavirus, but the clarity of how quickly these restrictions can be lifted and the fear of the economic impact of the pandemic remains unclear. .

“People understand that not only do you have infections that seem to peak in countries like Italy and Spain, but you have lock restrictions that are relaxed in places, and in the United States, the number of death is below expectations, “said Rupert Thompson, chief investment officer at Kingswood, a wealth manager. “At the moment this is good news, but we are far from a clear blue sky. “

New cases in Italy, Spain, Austria and Germany – based on seven-day moving averages – have all started to drop. Austria is expected to be the first European country to relax strict quarantine measures with the opening of some stores next week.

Pantheon Economics analysts expect the number of infections to peak in the United States and the United Kingdom this week. “The underlying trend is very clearly downward, as it should occur approximately three weeks after California was the first state to issue an on-site refuge order,” said Ian Shepherdson, chief economist at the Pantheon .

Before the rally ended at the end of the session in the United States, the Stoxx 600 in Europe finished the day up 1.9% and Asian stocks also climbed for a second day. The Hang Seng in Hong Kong closed up 2.2%.

Some investors were skeptical about the sustainability of the gains.

“This is a typical monster bear market rally, except that it took two weeks rather than three months,” said Luca Paolini, chief strategist at Pictet Asset Management. “The markets are reading daily infection rates too much. For this rally to continue, we need more evidence of a spike in Covid and a spike in jobless claims in the United States. “

There is also concern that more efforts are needed on the part of US policy makers to ensure that the worst economic damage from the coronavirus epidemic is avoided.

“The stimulus was necessary but insufficient,” said Jack Janasiewicz, portfolio manager at Natixis Investment Managers. “Congress understands that it needs to do more. “

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Investors also avoided government bonds on Tuesday, which pushed up 10-year US government bond yields by about 0.05 percentage points to 0.72%. Yields fall as prices rise.

Oil prices have plummeted after Monday’s resumption of hopes that Saudi Arabia and Russia will reach an agreement that would reduce crude oil production and support lower prices.

G20 oil ministers are expected to meet on Friday, the first time the group meets to specifically address energy issues, fueling optimism, an agreement can be made to cut production as global demand for oil wanes.

Crude oil Brent, the international benchmark for oil, lost more than 1% to trade at $ 32.52 a barrel.

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