• A pointy decline in COVID-19 instances is resulting in a newfound risk-on mode for the inventory market, Fundstrat’s Tom Lee stated in a word on Thursday.
• The bullish groundswell in shares is evidenced by a rally in high-yield bonds and declining volatility.
• If the COVID-19 downturn continues, a quicker-than-expected opening of the US economic system would signify a giant upside shock for the market, Lee stated.
• Join right here our day by day e-newsletter, 10 Issues Earlier than the Opening Bell.

The US inventory market is coming into “risk-on” mode as COVID-19 instances stage a pointy decline, Fundstrat’s Tom Lee stated in a word on Thursday.

Day by day instances of COVID-19 within the US have seen 10 consecutive days of declines, seemingly helped by each the rollout of vaccines and continued restrictions in the direction of gatherings. 

“We at the moment are seeing the strongest string of declines (7-day delta) that was not seen since Wave 2 ended over the Summer time,” Lee defined. 

“It is a huge downturn,” Lee stated, including that if the vaccination rollout strikes ahead strongly, buyers may see an “financial shock” if the US economic system opens before anticipated.

The inventory market already seems to be taking word and displaying indicators of risk-on mode as high-yield bonds rally and because the Cboe Volatility Index – or VIX – continues to fall decrease. The VIX traded simply above the 21 degree Friday afternoon, representing a greater than 20% decline from its intraday excessive reached on January 4. 

“We expect danger/reward stays constructive for shares,” Lee defined, including {that a} continued downturn in COVID instances could be supportive of a rally in small-cap and cyclical shares that have been most impacted by the pandemic. 

Learn extra: BANK OF AMERICA: Purchase these 31 unheralded shares because the restoration’s hottest trades of latest months proceed to achieve energy in 2021