Stocks rose in choppy trading after positive news on a Covid-19 treatment.

Three experts lay out what they’re watching for now. 

Savita Subramanian, head of equity and ESG strategy at BofA Securities, says investors are both positive and hedging their bets.

“Whether the market is pricing in a strong recovery or whether it’s pricing in a second wave, our work suggests that valuations of stay-at-home beneficiaries are kind of in line with valuations of the cyclical come-back-to-work beneficiaries, so I think that the market is pricing in kind of a 50/50-ish probability of a real second-wave risk at this point. But it’s interesting to see that what’s driving the market higher … is really tech and a kind of more of the online, more of the stay-at-home types of beneficiaries, so I don’t think the market is really pricing in that everything is fine and we’re all going to come back from this imminently.”

Jeffrey Solomon, chairman and CEO at Cowen, sees a tug of war in the market.

“I think this is virus versus Fed. I mean, I really do. You know, the Fed has done a great job of creating liquidity, and certainly I would say fiscal stimulus is something I’d throw in there with the Fed, so you can call it virus versus policy, broadly. But you know, we’re just watching closely to see what impact the virus has on the economy, and I would say I’m not particularly surprised by what’s happening. We knew that reopening would cause an increase in infection rates. I think we’re better prepared to handle those infections today across the country than we were. So, there’s going to be stress points and hot spots. These are all things that we expected to happen.”

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Thomas Michaud, CEO and president at KBW, lays out what he’s watching ahead of bank earnings.

“We are using a new accounting practice for this recession that’s never been done before, and banks are required to provide for all of the credit losses through the cycle in the current quarter. So really what you’re doing is you’re pulling forward estimated future losses. And that’s why it makes it a little bit more spectacular … that it’s going to be the worst quarter. Because it’ll be the worst quarter because earnings will be low, but it won’t be the worst quarter because of credit losses. We’re actually expecting loan losses to be quite benign, and that’s going to be one of the big questions of the quarter, which is what are managements saying about what’s going to happen to credit later in the year when a lot of the government stimulus programs run off? So what we’re really focused on for this quarter is what’s happening with credit. We’re expecting very big provisions, probably larger than they were in the first quarter, then we’re expecting provisions in the second half of the year to decline. We’re expecting headwinds on revenue just because interest rates are down. We’re expecting margins and net interest income to be down. But there are going to be some banks who do better than others, and the banks that start reporting on Tuesday, in particular, JPMorgan and Citi, who have really excellent securities operations, those who have investment banking along the lines of sales and trading, capital raising are going to do well.”

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