One also has to understand that the market bottoms out much sooner than the economy and that has always been the case. If one is going to look at pure GDP numbers then one will doubt this rally, says CIO Manish Singh.

How are you viewing the US markets?
3,100 on S&P 500 is about fair value, although, the risk always remains to the upside given the reopening of the economy. We will have to look at how the US jobs report comes in less than two weeks time. The second wave is not as big concern; the number of cases increasing in itself should not be bearish at all. What one should look at is what is the percentage of hospitalisation rate and the percentage of death rate which clearly we are not seeing an increase in. So, that keeps the lid on the bear cases. We now just rely on how the earnings and GDP numbers are going to improve. And on that basis, there is risk to the upside but given that we have had such strong recovery, it is likely the market mood may remain in sideways mode for now.

We saw the employment data come out how is that going to play out in the markets?

These are weekly numbers. They are not going to have a big effect. They will continue to ease, the key thing is the monthly US jobs report and if we see more people coming back to work and an increase in jobs activity then that is a good sign. Jobless claim numbers are an indicator but the key indicator is going to be the US jobs report which is a monthly data. We had very strong numbers for May and if that is repeated for June then it will be seen as a sign that market is improving and activity is going to catch up because then it starts flowing into old parts of the economy and into the consumption numbers. And the consumer is strong because the disposable income of the US consumers is very high given they have not been spending and the government payment protection plan is in place. So, the consumer is in a strong position and ready to spend so long as they have avenues to spend.

Also there is so much talk about a second wave of the coronavirus in the US and despite that we are seeing the markets rise, is there a disconsonant there or how do you explain it?

I would not say that because we would always have the scare. We are talking about a virus here which obviously did not come with a manual or we don’t know how many versions there are going to be and how we are going to deal with it. The modus operandi is completely established on how the government is going to react and how people are going to react. The safety measures are in place, the hygiene measures are in place and are going to continue to stay. The key thing we have to look at is the number of death rate.

The recommendation of Oxford University which is going to come into play if you listen to Dr Fauci is that we did not have to have large parts of the economy close down. So these things are really adding to the positive swing to the market and the key thing for S&P to have a new high which it will have later this year is going to be when the economies have opened up and we have really seen a measured increase in earnings and GDP and the money that the government has been pouring into the economy or into the pockets of people through payment protection plan. Those are going to show up in consumption numbers, so one cannot be bearish. The only reason I am cautious is that I think that it might be sideways movement maybe for a month, two months or maybe a couple of weeks or few weeks but if you are talking end of the year, then definitely S&P is going to be higher from here and a new high in S&P is likely before the end of the year.

Also whether it is India or the US, there is this dichotomy that we are always trying to figure out between markets and the economy and that stands true, does not it? How long do you think this dichotomy is going to last in these times?

That is true because the market is not the economy. And it has never been true more than now as we have seen. One also has to understand that the market bottoms out much sooner than the economy and that has always been the case. If one is going to look at pure GDP numbers then one has this doubt on rally as we have seen. The economic numbers are still bottoming out or not increasing or getting better as soon as the market is because the market clearly sees that in advance. This state will continue and one really has to focus on what we are dealing with here.

We are dealing with an economy which was shut down of our own volition and for the right reasons and therefore it can be restarted. Now some parts of the economy may take time to restart, the social distancing measures are being reviewed in the UK, the tourist corridors are being established so holidays can resume and the willingness to resume the economy is extremely high. And of course, there comes a point where you have to see what is the lockdown doing, how many people and lives are we saving and how much we are endangering by way of economic or mental health. The cost is rising everyday so reopening is definitely everyone’s focus and therefore I expect that data will get better and the market will continue to react to it.



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