Stocks surge as Robinhoods are in town

Editorial | Mary Ma 17 Jun 2020

Led by Wall Street, global stock markets have bounced back with a miraculous V-shape.

While US futures still pointed south ahead of Monday's trading, the various indexes shot upwards.

For example, it was almost a 1,000-point streak from south to north for the Dow Jones Industrial Average. But just a few days ago, it had fallen 1,800 points.

Was it a typical bear trap? Those who were tricked by news of a second wave of the pandemic and swallowed the bait that this was just the beginning of another slump were immediately trapped and mauled by hunters.

I can imagine their pitiful cries for help.

That's the stock market. It is a fantastic world when you make money - but, as seen, that world can suddenly go pear shaped.

There was already a sense of weirdness when Wall Street was fed with reports of a surge in new pandemic cases just as local communities in the United States started lifting lockdowns. The situation was inaccurately depicted as a second wave - scary terminology for many people.

The term was incorrect. As I commented in this column earlier, how can there be a second wave when the first wave is not over yet? The new cases were, at most, a continuation of the current wave of pandemic with geographical variations.

Nonetheless, the fears offered an ideal excuse to initiate a sell-off.

After all, the Nasdaq had ascended above the pre-pandemic high to hit new records. The Dow and Standard & Poor's indexes had also climbed close to their previous peaks. When unemployment was still a concern despite a recent reprieve with better-than-expected job figures, the financial markets went too far ahead of the real economy.

The gap is huge.

Upcoming in a couple of days is the second "Triple Witching Friday" of the year when many US futures and options will expire.

As for investors holding short positions, the swing has put them in an absolutely precarious position.

The bear trap was compounded by the Federal Reserve's latest announcement that it will buy individual corporate bonds in addition to exchange-traded funds to lubricate the credit markets.

Further to this is the expectation of a fresh US$1 trillion fund due to be announced by US President Donald Trump for massive infrastructure projects including roads, bridges, 5G networks and rural broadband.

These may be the stimuli that market players have been waiting for. Unfortunately, retail investors are usually the last to learn about them. Usually, when they do get to know, the market direction has already changed, making it too late for them to take up the torch.

The lockdowns around the world have seen an increase in first-time investors and a rise in popularity of so-called commission-free trading platforms like Robinhood, Trading 212 and Firstrade. These are particularly attractive to millenials, giving them access to US and British stocks.

With the help of these platforms, more Hongkongers than ever before have been trading in US stocks.

A problem is that financial markets are tricky. It is essential to do plenty of homework before investing your money.

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