[Market Madness] Edition 0053
The Recovery Continues
A spark of optimism
Well folks, we’re seeing another day of gains as the market opens this morning. The market continues to shrug off the bad and focus on the good as some economists are seeing signs of economic recovery and numbers that were ‘not as bad’ as expected. New data suggests that home purchases have risen in the low mortgage rate environment, and as local and regional banks resume activity, these mortgages can be processed, allowing consumers to now take advantage of the low interest rate environment.
Please enjoy today’s shorter piece where we dig into some of the economic details that have investors feeling optimistic and moving markets.
Did you miss yesterdays’s piece? No worries, get it right here to catch up on the madness!
Fundamentals
Wednesday Close:
· Dow Jones Industrial Avg: +2.05%
· S&P 500: +1.36%
· NASDAQ: +0.78%
· US 10 YR: 0.757% | 98 7 / 32
· Crude OIL: $36.89
· Market Madness Portfolio: +1.22%
· COVID 19 Global Cases: 6,522,142
Indices Overseas:
· FTSE 100: +2.22%
· Nikkei: +1.29%
A boost of hope in a mixed market
Investors are liking the data they are seeing today, as the markets are pumping upward. Private payrolls fell by only a fraction of what was expected, signalling stronger than expected employment figures for the month of May. Gold is on the decline as well, signalling that investors are deviating away from the traditional safe haven. It is becoming clear that the U.S. investors are focused solely on the re-ignition of the U.S. economic flame, and not about the other global issues that have been taking shape over the past month.
We reported the other day that JP Morgan is still promoting hesitancy when it comes to this latest market rally, suggesting that it is possible we’ll see another retraction to 19,000 before hitting new highs later in the year. A Moody’s Analytics economist today called the end of the COVID 19 recession, according to the latest economic figures. Nothing is going to change the sharp decline in GDP we are poised to see for Q2, that is already behind investors.
The real focus is shaping up to be how much ground we are able to cover in Q3 with respect to getting back to ‘even’, as in the levels we saw in December 2019 before COVID 19’s fatal onset. Going back a handful of editions (0034), we looked at the different charts for the recovery pattern that were being tracked against the economic data for where we were.
Yesterday, we talked a little more about the now-financially-famous Nike ‘swoosh’ recovery pattern (top left) and how this is likely the recovery path the aggregated economy will follow. I say aggregated here because each industry and sector of the economy has been challenged by their own unique set of circumstances that may be different than the economy as a whole. While some industries will notice more of a ‘V-shaped’ recovery, others might notice an ‘L-shaped’ recovery. Taking all the different industry recovery paths together, experts believe that the average of all recovery paths is still on track for a ‘swoosh’ style path.
I still believe that it is a little too early to tell with enough confidence to make a prediction to the public about the path for recovery. We still need several more weeks of convincing and positive economic data for me to feel comfortable, and given the current events that are shaking up geopolitical sentiments as well as the ongoing civil unrest, a lot more needs to be priced in before we can put pen to paper about the recovery path.
In other areas, traders and market watchers appear to be scratching their heads as they see gains in both COVID 19 winners and losers. Stocks that got crushed by COVID and stocks that got a hefty boost by COVID both appear to be ticking upward today, showcasing some market confusion. Some experts anticipated lock down superstar stocks to make a decline as re-openings progressed. This is opposite of what we’re seeing today in the markets so far. That is not to say that one day on the markets makes a trend, but it does add to the feelings of confusion that market watchers have been commonly feeling as of late.
Volatility has been on a steady decline the past few days, signalling some calm road ahead at least in the short-term. We also saw a tick upward in U.S. Treasury yields, signalling that some investors are moving out of those safer assets in favor of riskier ones. (Remember: as bond yields go up, the prices go down. A rise in prices and a drop in yields signals a lot of buying activity. The opposite signals selling activity.) This tends to be in-line with positive momentum in the stock indices.
Read more here: https://www.cnbc.com/2020/06/02/stock-market-futures-open-to-close-news.html and here: https://www.wsj.com/articles/lockdown-winners-and-losers-shouldnt-both-be-rallying-11591182000?mod=markets_lead_pos10
Quick takes
· Trump Administration bans Chinese passenger airlines from flying to the U.S. (via CNBC)
· Zoom’s revenue grew nearly 170% in the quarter, and raises guidance for the year. (via CNBC)
· Woman-led hedge funds outperform male counterparts during COVID 19 crisis. (via FT)
· Private payroll falls by 2.76 million, a number much lower than what was feared. (via CNBC and ADP)
· AMC Theaters feeling highly doubtful it will survive the COVID 19 crisis. (via CNBC)
· Dr. Fauci warns that a COVID 19 vaccine may not provide long-term immunity. (via CNBC)
· Japan warns its banks about ‘risky’ U.S. debt. (via WSJ)
Reader’s Corner
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