Many are watching progress of U.S. states trying to reopen their economies without fueling a resurgence in coronavirus cases. Parts of New York, Virginia and Maryland moved toward lifting lockdowns on Friday, and Connecticut and Minnesota are set to ease restrictions in the coming week.
“We don’t know what the new normal will be,” said Alessio de Longis, portfolio manager at Invesco. “The managing of expectations will lead to some false steps along the way.”
For now, a pile-up of worrying domestic and international news prompted investors to pull back on equities after the S&P 500 in April notched its best monthly gain in decades.
U.S. President Donald Trump has ratcheted up rhetoric on China, floating the possibility of cutting ties with the world’s second-largest economy. The White House on Friday moved to block shipments of semiconductors to Huawei Technologies Co Ltd [HWT.UL] from global chipmakers, which could put pressure on a global economy already suffering its deepest contraction in decades. Hopes for a speedy return to normal took another hit when California’s state university system canceled classes for the fall semester because of the coronavirus and Los Angeles County said its stay-at-home order was likely to be extended by three months.
“What we’re seeing now is the wash of realism coming over the market,” said Shannon Saccocia, chief investment officer at Boston Private. The VIX on Monday touched its lowest level since late February before reversing course as expectations for market volatility grew later in the week. Concerns over economic reopening are reflected in the VIX futures curve, which shows investors betting volatility will be elevated in coming weeks, rather than later in the summer, said Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group. ♦
