Photo taken on March 24, 2020, shows the New York Stock Exchange and George Washington statue on Wall Street in New York, the United States. (Xinhua/Wang Ying)
U.S. stocks on Monday saw a massive surge on positive news of a COVID-19 vaccine trial, as well as U.S. Federal Reserve Chairman Jerome Powell's comments that he would not "bet against America." But some economists said the rally is premature, and that the U.S. economy will not be out of the woods until a vaccine is widely available.
"I think that the stock market has got ahead of itself by rallying so strongly from its recent lows," Desmond Lachman, a resident fellow at the American Enterprise Institute, told Xinhua.
"It has done so despite a stream of bad economic numbers suggesting that the recession is worse than initially expected", he said.
The Dow Jones Industrial Average shot up over 900 points in Monday's mid-day trading, on the heels of positive news of biotech company Moderna's phase 1 clinical trials of a vaccine against the coronavirus that has infected nearly 4.8 million people worldwide according to Johns Hopkins University.
"What the market does is it tries to discount ahead. People are now going to anticipate the treatment, and the bets are coming in that we seen an end coming in sooner rather than later," Joe Saluzzi, co-head of equity trading at Themis trading company, told MarketWatch.
Powell's remarks over the weekend also sent markets surging. The Fed chief told CBS' 60 Minutes that the recovery may take a while, but that "in the long run and even in the medium run, you wouldn't want to bet against the American economy."
Powell added that while jobless numbers could reach a record 25 percent, he did not fret over another Great Depression, as the market will rebound in this year's second half.
Speaking Monday on Fox Business News, Jeff Saut, chief investment strategist at Capital Wealth Planning, echoed those thoughts. He said he sees a strong rebound in this year's second half, given the pent up demand, and the trend of people being stuck at home and wanting to get out of the house. The market may not pay much attention to the poor earnings reports that will inevitably come out, he added.
In Lachman's opinion, however, the market is overly optimistic about a V-shaped economic recovery.
"To be sure, we will get a strong third quarter bounce in the economy as the current restrictions on activity are lifted. However, that recovery could prove to be short-lived if we get a second wave of the pandemic or if we get a wave of bankruptcies and defaults as a result of the deep recession," he said.
"Until a vaccine is widely available, we are going to see many sectors of both the U.S. and the world economy continue to be under pressure," Lachman said.
