Spain's IBEX rebounds from 5,800: Is coronavirus crash over?

Spain's IBEX rebounds from 5,800 as market doubts the end of the crash

Has the cobi19 stock market crash ended? Spain's IBEX dropped from 10,000 to 5,800 points, while the Dow Jones fell from 30,000 to 18,000. Then came a rebound. The question is whether this marks the bottom or a classic bull trap, and honestly, there is no consensus. However, there are concrete reasons for skepticism.

Why is the stock market rising while the real economy sinks?

Because prices are set by central bank printing, not cash registers. The Federal Reserve cut rates to zero and launched massive asset purchases; the European Central Bank floods Europe with liquidity. With central banks buying debt and institutional money seeking returns anywhere, rallies reflect liquidity mechanics rather than economic activity.

Some argue this goes beyond conventional monetary policy, resembling Modern Monetary Theory: distributing money until the system breaks. This thesis is debatable, but has an uncomfortable truth: since 1973, financial markets ceased mirroring the real economy. Japan’s economy has struggled for decades, yet its index persists.

Spain remains in intensive care: banking, tourism, and autos

Spain faces different challenges than the US. Tourism and automotive sectors account for roughly 22% of GDP, and will suffer most if summer underperforms and autumn brings resurgence. Hotels expecting 80 million visitors, airlines, and airport managers depend on a season that may not arrive.

Additionally, default risks loom. Pessimistic forecasts suggest delinquency could exceed 2008 levels, potentially breaking mid-sized institutions trading at current valuations. Conversely, mortgage and rent sarracena granted by most banks have frozen, not solved, the problem. Real balance sheet impacts remain unseen.

Is the S&P 500 expensive? Excluding the five giants

Optimists offer a strong argument here. If we create an index excluding the top five tech stocks—known as FAAMG—the rest of the S&P 500 would trade at a P/E ratio of 17, price-to-book of 1.2, price-to-sales of 1.3, and price-to-cash-flow of 9. These figures closely match the Euro Stoxx, widely considered cheap. With ten-year bonds yielding 0.6%, the comparison shifts.

Intangibles like brand, data, pricing power, and talent drive valuations but aren’t captured by P/E ratios. This doesn’t make tech stocks cheap—at these prices, safety margins vanish—but explains why they appear expensive yet keep rising.

May’s 2.5 million US jobs data

The headline was spectacular: 2.5 million jobs created in one month. Two issues arise. First, statistical errors were reported. Second, more critically, recovering pre-crisis levels would take twelve months at this pace, ruling out a V-shaped recovery. Prolonged shutdowns deplete savings, investment, and consumption, causing bankruptcies that rapid normalization might avoid.

The self-feeding rally

When retail investors flood in, watch who exits quietly. Stock-related searches surged, FOMO dominates sentiment, and large players sell into strength. Statistics show individuals rarely win when everyone buys simultaneously. “If you’re asking, you doubt the rally, like most people. So the rally is good,” summarizes the cynical yet likely accurate view.

Calendar expectations matter too. Some predict the first serious hit near peak euphoria, just before Q2 earnings, warning certain stocks could drop 15% to 20% upon midsummer results.

Risks for aggressive investors

Forecast ranges reveal deep uncertainty. Bulls see the IBEX above 8,000 points by Christmas; bears place it near 4,000 within five years. Others expect renewed drops toward March lows or believe the train has left. Tesla debates mirror this: some see sub-$1,000 entries as golden opportunities; others foresee fierce competition among surviving automakers.

Street-level indicators exist too. One popular saying: when pawn shops proliferate selling grandparents’ gold, it’s time to invest. Unofficial, but often wiser than formal reports.

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Is the crash over? The IBEX suggests no, the money printer says yes, and no delinquent mortgages appear on balance sheets yet. Everything looks fine, except someone else pays for the party.