Stock market crash: why we could be about to see a big rally in shares

According to MarketWatch, the stock market crash could soon turn into a “monstrous” rally, if one market analyst is to be believed.

Shares could start shooting up in depressed sectors as soon as next week, reckons Thomas Lee of Fundstrat Global Advisors. He’s even suggested we’ll see new stock market highs by the end of the summer.

A stock market rally could be coming

Of course, it’s easy to say things like that. But maybe Lee is onto something. For background, the US stock market has just seen the best start to August for years, according to MarketWatch. And the thrust of Lee’s bullishness is that he reckons the stock market’s unloved sectors are on the cusp of breaking out higher. He thinks the move will start just as Covid-19 cases peak.

It’s worth noting that Lee is a US-focused analyst. But it’s also true the FTSE markets in the UK have a long history of following the US markets, at least in the short term. And Lee reckons the ducks are aligned for a “textbook” rebound in the parts of the market that have been bashed the hardest by the pandemic. In past market crashes, many depressed sectors have always recovered strongly before.

According to Fundstrat, the seven-day rolling average of new Covid-19 cases worldwide has started to decline. And the firm, led by Lee, anticipates a rally in stocks beginning around 14 August with the possibility of a 30% rise in stock markets over the following two weeks.

Such a precise prediction strikes me as being easy to get wrong. But I reckon Lee is right that beaten-down sectors are attractive if we have a long-term investment horizon in mind.

Searching for good value 

For example, I reckon there’s some good value in the housebuilding sector. Indeed, the easing of stamp duty and ongoing low borrowing costs for mortgages is fuelling a min-boom in house prices right now. But shares such as Vistry, Persimmon, Taylor Wimpey, Redrow and other house building companies have been weak.

Another obvious casualty of coronavirus is the airline sector. Maybe we’ll start to see some strength in shares such as EasyJet and International Consolidated Airlines. If the return to ‘normal’ ways of living gathers pace, demand for flights could pick up, which would underpin strength in those shares now.

And it’s a similar story in the hotel and hospitality sectors. I live in a seaside town and it’s clear my local hospitality and accommodation industry is now enjoying a bumper summer of trading. Many small businesses in the sector are seeing the best trading they’ve had in decades.

If trends like that continue, it would make sense for shares to rise. For example, hotel operator Whitbread, and foodservice and hospitality operators such as Marston’s, Compass and Greggs.

We could also see strength in retail shares like Next and Burberry. And rising stock markets could help financial companies such as Lloyds Banking Group, Barclays, Aviva and Prudential.

Lee may be right or wrong about the timing of a rally in shares. But I’m not going to back away from buying good value when shares offer it because recovery will likely arrive in the end.