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StockBeat: Lockdown Is Over (Part II): Let's Go Down the Pub

Stock Markets May 26, 2020 05:43AM ET
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© Reuters.

By Geoffrey Smith 

Investing.com -- The recovery trade in Europe is finally on.

The benchmark Stoxx 600 hit an 11-week high morning trade on Tuesday as U.K. institutions reopening after the long holiday weekend played catch up with a rally that had started on Monday in response to the lifting of various lockdown measures, notably Spain’s reopening of its tourism sector.

By 5:30 AM ET (0930 GMT), the Stoxx 600 was up 1.1% at 348.98, having earlier hit an intraday high of 349.72, its highest since March 10. The tourism-sensitive Spanish IBEX 35 outperformed again with a gain of 1.4%, while the U.K. midcap index, the FTSE 250, rose 3.2% in anticipation that the government will be forced to relax lockdown measures that its own staff can’t be bothered to observe. Pub operator Mitchells & Butlers (LON:MAB) stock rose 26.5% (partly inspired by last week's deal between Carlsberg (OTC:CABGY) A/S B (CSE:CARLb) and Marston’s (LON:MARS).

While that’s not a clear breakout from the sideways trading range of recent weeks for the Stoxx, the odds must be that it is pulled higher when U.S. markets also reopen after the Memorial Day holiday later on Tuesday.

It’s possible to argue with the long-term benefits of buying into stocks whose business model has been ruthlessly exposed by the pandemic. But in the short term, at least, many institutions will be forced back into sectors that have underperformed in the last two months or risk missing their own performance benchmarks.

Hence the startling outperformance – for a second straight day – of the travel and leisure sectors. IAG (LON:ICAG) and EasyJet (LON:EZJ) shares rose more than 20%, while Norwegian Air Shuttle ASA (OL:NWC) stock rose 17% and Melia Hotels (MC:MEL) rose another 17%.

“Late innings but not the last,” analysts at Goldman Sachs wrote in a weekly note to clients. They argued that sentiment towards the recent rally has started to shift, away from skepticism and the conviction that it was being fueled only by central bank support, towards the acceptance of a more fundamental improvement in the economic outlook.

Analysts have been saying for months that they expected the bottom of the downturn to occur in the second quarter. The modest improvements in Germany’s Ifo Business Climate on Monday, and in the GfK consumer confidence survey out earlier on Tuesday, appear to back that up.

But the more important factor is surely that investors are reacting to what they are seeing and hearing themselves. There are more people out of doors, more cars on the streets (including those of U.K. government advisors checking their eyesight), and the direction of travel as regards government policy has clearly changed for the better, with countries reopening borders, relaxing lockdowns and – according to German reports – preparing to lift travel warnings for tourists.

On top of all this, there appears to be more stimulus on the way: Bank of France Governor Francois Villeroy de Galhau came out strongly in a speech for acting “rapidly and powerfully”, comments interpreted by many as a signal that the European Central Bank will expand its latest bond-buying program, the so-called PEPP, at its council meeting on June 4.

What’s not to like?

 

StockBeat: Lockdown Is Over (Part II): Let's Go Down the Pub
 

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Comments (9)
David Knight
David Knight May 26, 2020 8:33AM ET
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Republicans like small gov, free economics and taking care of yourself. trump has done the opposite. trump is all bad for everyone.
Holly Sorensen
Holly Sorensen May 26, 2020 8:22AM ET
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push to spread the virus by trump is in full force as he needs this to mess with our elections...arent we all tired of this chaos ...we need the opposite and will never have truth from this sham administration
rob finch
rob finch May 26, 2020 7:42AM ET
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LOL The virus turned out to be a scam after all. They think the lethality is somewhere around .1-.2 percent. We all owe President Donald Trump a huge apology. On 3 ready? 1...2...3. We're sorry President Trump.
Chris Sundo
Chris Sundo May 26, 2020 6:38AM ET
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or how about this: the rally is fake money ok, but the purpose of raising the market it so the money managers can get out reasonably close to the top for the benefit of all their clients and to save face, before reality sets in until say august. -- Mark Cuban Warren Buffet and Bill Gates are still on the sidelines or even short since the bottom.
Stanislav Makarov
Stanislav Makarov May 26, 2020 6:30AM ET
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So lot's of ppl in the streets means that stocks have to test their ATHs despite massive problems in the economies?
Stanislav Ivanovskiy
Stanislav Ivanovskiy May 26, 2020 6:30AM ET
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don't bother yourself with logic, this scam has only one direction!
Francesco Lucchesi
Francesco Lucchesi May 26, 2020 6:30AM ET
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correct, there is no logic. stay long equities for a bit. but watch your positions ready to hit sell button. there are so many issues and yet here we are back at over 3000
Chris Sundo
Chris Sundo May 26, 2020 6:28AM ET
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The virus has NOT changed in terms of tangible changes. In fact, the virus has MUTATED to be MORE INFECTIOUS. There were 628 mutations measured near end of March. People gathered in def iance of public rules on the beaches and portrayed themselves as extremely mind less and incom petent in face of REALITY. So Why does REALITY now cause a 500 point Dow rally based on 'vaccine hopes' when EVERYONE AND THEIR MO THER KNOWS that there ai n't be a vaccine when trump gets voted out of power in 164 days. -- No No! It's some big wig WS consortium that hopes to pun cture a ho le into the short-covering story for a few hours or days, before we see a possible bea rish covering candle on the daily or weekly.
Junk Man
Junk_Man May 26, 2020 6:05AM ET
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20% unemployment? Lots of small biz not coming back, consumer spending falling... Yet market roaring back? Place your bets...
Klaus Weyers
Klaus Weyers May 26, 2020 5:58AM ET
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biz going bankrupt and revenue and earnings plummeting.. I am short
Trat Nguyen
Trat Nguyen May 26, 2020 5:58AM ET
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Short on brains.
Biji Rajaku
Biji Rajaku May 26, 2020 5:56AM ET
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It's too fast and so creepy...
Chris Sundo
Chris Sundo May 26, 2020 5:56AM ET
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yeah, the weird thing is WE ALL KNOW that the heading is FAKE GALORE for the short term and even for the medium term, a really si ck jo ke on reality, probably an intense short covering attempt using fake money.
 
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