Chinese Stocks Tanked After Markets Reopen. Why U.S. Stocks Are Rising. - Barron's

Photograph by Tomohiro Ohsumi/Getty Images

10:17 a.m. The Super Bowl is over, which means we can turn our attention to the stock market. Chinese stocks, which were closed last week for the Lunar New Year, tumbled, but U.S. stock futures are not.

There’s a good reason for that. Because China’s stock markets were closed last week, they’re now playing catch-up, doing in one day what would have taken a week of gyrations to accomplish. So yes, the Shanghai Composite tumbled 7.7% to 2746.61, but that’s a week’s worth of losses. Losses in Chinese stocks are also not as bad as they could have been thanks to an injection of $173 billion from the People’s Bank of China.

U.S. stocks most definitely traded last week, and the Dow Jones Industrial Average dropped 2.5%, its largest decline since August. The benchmark ended the week with a 600-plus point drop, as investors finally took the coronavirus seriously.

Yet, with a weekend to digest the spread of the virus, plus the steps China is taking to boost its economy, investors seem to be once again looking past it. The Dow has gained 341.65 points, or 0.6%, to 28,597.68, while the S&P 500 has risen 0.8% to 3249.69, and the Nasdaq Composite has climbed 1.4% to 9282.26.

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But a Monday rally isn’t the same as an all-clear. In fact, it might just be the lure to attract investors before the next decline. “It seems many investors just want to ‘buy the dip,’” writes Oanda’s Edward Moya. “If we continue to see the virus have over 20% daily increases in both the death toll and number of cases, this will just become another dead-cat-bounce.”

It might not be time to run into stocks just yet, but there’s a good chance that a buying opportunity will present itself. The reason: The global economy probably won’t enter recession, writes Morgan Stanley economist Chetan Ahya. “From a global perspective, the impact to growth will come through China’s GDP and its contribution to global growth, as well as spillover effects on the rest of the world—principally via the trade and tourism sectors,” he explains. “While the coronavirus development does imply some downside to near-term growth, it should not derail the global recovery.”

Write to Ben Levisohn at Ben.Levisohn@barrons.com

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