Asian stocks looked set to slump after US equities tumbled the most in 12 weeks, as worries over a jump in coronavirus cases added to concern the recent rally had gone too far.

US equities were sharply lower Thursday. The S&P500 index down a frightening 5.9% following similar losses through Europe and losses through Asia as the spikes in virus infection rates in the US after re-opening measures were enacted early in May spooked the pants of global investors.

While overall growth in infection rates nationwide remains seven-day average rates of new cases in California, Florida, Georgia, and Texas are at or near record highs. There were news reports that officials in Houston are getting to imposing a new stay-at-home order and are looking to re-open a pop-up virus hospital.

US Fed’s outlook

Underpinning the risk-off tone was the Fed’s downcast economic outlook, which highlighted those specific financial concerns around the virus. I do not think you could have imagined a worse set up for risk if you could have drawn it up in a how-to trade and overcooked stock market manual 101.

Was it too pessimistic a view? Who knows? The employment data remains depressed, and the trajectory of the data will matter. But for years on end, the market continues to struggle with the Fed’s exercise in verbal gymnastics much to the detriment of risk assets.

Asset bubbles and inflation are not a concern to the Fed. That was made abundantly clear, which means more is coming from the Fed and when that happens, does that mean buy the dip?

If equities like cheap money so you would think that risk markets would have perhaps embraced Fed Chair Powell’s comment that the Fed “wasn’t even thinking about raising rates.” Putting aside the fact that Powell even felt he needed to make that statement equities have decided that enough for now.

Robinhood and their merry bunch of retail investors have recently dominated headlines in the financial press and, sadly, likely bore the brunt of the recent market capitulation.

As for the most part, at the very tail end of the equity market rebound +3000 S&P 500 anyway, this was probably the most undescribed institution backed rally of all time.

The stock market moves are staggering, but it feels like there is little blood on the street.

Sure, there are the usual blather mouths out there telling everyone, ” I told you so,” But everyone to a tee knew this market was overcooked and were waiting for the ball to drop.

There should be no joy and, most of all, no back-slapping when hard-working folks money is getting poured down the drain.

I wish the new kids on the block had taken some advice from the pros not to chase this thing as the asset price disconnect to economic reality was becoming more laughable than it had become worrying in institutional circles.

Bizarrely and I can’t believe I am going to type this after an eye-watering 230-point drop-top to bottom on the SPX this week. At the moment, until there is indisputable evidence of secondary outbreak in NY, the market moves still seem more about profit-taking than a new period of risk-off.

International markets analysis and insights from Stephen Innes, Chief Global Market Strategist at AxiCorp