Have global equities turned a corner?

Also US companies with weak balance sheets were bid yesterday up 4.7% from open to close and the lows improved significantly from the lows in the prior session. US small caps were part of this rally in equities and our overall view is that this signals real risk taking as these periphery segments of the equity market are the ones that turn first.

Another important signal to investors is the VIX Index that is quoted at 66 this morning but the May VIX futures contract is also falling maintaining the steepness in the backwardation meaning that long volatility is still seeing tailwind – long VIX futures strategies are up again today in European session. The backwardation in the VIX futures term structure (read here why the VIX futures term structure is important) suggests that we could see more drawdowns in equities but for now short-term we believe risk-on sentiment will dominate.

Overall our view is that global equities have found a short-term bottom here as things are stabilizing and markets are digesting all the stimulus that is coming. However, it’s important to clarify that we could still see a lower equity market in the time to come due to all the unknowns related to COVID-19 and its impact on economy and credit. For inspiration in single stocks during bounce backs we have US/European and Nordic lists.