Long weekend is latest challenge for whiplashed stock traders

New York

LONG or short into the weekend? It's a question with no clear answer during normal times, but with fast-moving news cycles roiling markets, traders staring at a three-day break are especially anxious.

As with all things virus, past playbooks offer little guidance. What's clear so far is that Mondays have delivered massive swings - 5.8 per cent on average, compared with 3.6 per cent on any other day. The moves cut both ways and don't always reverse what happened on Friday.

Take last Monday, when the S&P 500 surged 7 per cent for one of the best starts to a week on record after reported death tolls in some of the world's Covid-19 hot spots showed signs of easing.

Three weeks prior, stocks sank almost 12 per cent after US President Donald Trump warned that the economic disruption from the virus could last into the summer.

"Some people feel like 'I don't want to be in the market. If bad news happens I can't do anything about it'," said Peter Mallouk, president of Creative Planning, which manages about US$45 billion. "I feel the opposite. Going into the weekend, I'm much more comfortable being in the market."

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Extreme volatility has gripped equity markets around the world since the Covid-19 outbreak began, delivering wave after wave of atrocious headlines. Investors forced to sit idle for two days have eyed weekends with trepidation that developments will upend their positions.

Stocks rose on Thursday, helped by an array of Federal Reserve stimulus measures. The S&P 500 is up 25 per cent since March 23 as government spending kicks in and virus news shows signs of improving. Having watched equities rally each of the past two Mondays and leery of missing out, some investors are piling in ahead of the weekend, afraid to miss out.

Dave Lutz, a macro strategist at JonesTrading, is trusting his gut ahead of the holiday break and resisting any pressures to sell off into the close.

Headlines continue to improve, he says, including better data trends in Spain and Italy as well as in New York City and Washington State.

Not everyone's convinced. Matt Maley, an equity strategist at Miller Tabak & Co, cautions against it, especially considering the week's double-digit advance. "There is still too much uncertainty out there to chase the rallies," he said. But should positive headlines break over a weekend, investors wouldn't have a chance to get back in ahead of the next open, said Creative Planning's Mr Mallouk. "It's going to open thousands of points higher and you'll have missed your opportunity."

That rings true for Chris Gaffney, president of world markets at TIAA. A breakthrough, such as on a vaccine, could come at any point, he said. That's a big risk for investors staying in cash.

"The risks for being in cash versus the risk for having exposure to equity markets over the weekend are going to tilt towards being long rather than short because of the potential for positive headlines and lack of potential for really bad negative headlines," he said. BLOOMBERG