[Market Madness] Edition 0069
Let’s get started
Well folks, we have an interesting week ahead of us. In the afternoon yesterday, we surpassed 9 million global COVID 19 cases. Locally, here in the U.S., we’ve seen increased new cases for the past several days. Some good news appears to be in the decreasing severity of the new cases, which poses some optimism for hospital capacities moving forward.
Elsewhere, former national security advisor, John Bolton, is set to release his scandalous memoir tomorrow. Leaked PDF copies have already circulated around the internet. This memoir and interviews with Bolton will likely continue to shake up Capitol Hill for the coming weeks.
Financially, if the markets were an ice cream flavor, they’d be rocky road. We started the day down, pessimistic on virus outlooks, but have since gone green midday, with tech companies leading the way. Many market-watchers feel that any rises will be capped due to continued fears over rising cases. Regardless, as reopening processes are taking shape, demand for oil is creeping back, as we saw crude prices go over $40 per barrel again today. Much is still left up to personal interpretation for the bigger picture moving forward.
Today, we look at the rise in Money Market Mutual Funds and how they might impact the ongoing economic recovery.
Did you miss the last edition? No worries! Get it right here and catch up on the madness.
Fundamentals
Monday Close:
Dow Jones Industrial Avg: +0.59%
S&P 500: +0.65%
NASDAQ: +1.11%
US 10 YR: 0.705%
Crude OIL: $40.60
Market Madness Portfolio: +0.77%
COVID 19 Global Cases: 9,136,606
Indices Overseas:
FTSE 100: -0.76%
Nikkei 225: -0.18%
Hang Seng: -0.54%
TEDRATE: 0.16
LIBOR (3 month): 0.30513%
Money Market Madness
Yesterday, we talked about the dramatic rise in bank deposit savings. Today, we are going to look at the massive move that has taken place from riskier investments into Money Market mutual fund assets. Money Market funds are highly liquid investment parking spots for investors to place money with their short-term objective being to turn into cash. Given the large decline in the markets we saw in March, we saw an equally large rise in Money Market mutual fund assets. According to LPL Financial, much of the recent market rise has not led investors to move back into riskier assets, instead opting to stay shelter-in-place in the Money Market funds.
This trend appears in line with what we had discussed yesterday in savings deposits. Investors and consumers are afraid of market instability and the underlying risk from that. Coupled with the idea that many consumers did not have an adequate level of accessible funds set aside for times of emergency, many want to mitigate the potential of future losses, cut their current losses and park themselves in a cash-rich position. That idea may not be such a bad one either. If you are middle-aged or older and have current uncertainty with your job, a little extra cash won’t be so bad, considering that it may take more time than expected for the markets to really rally back to their January highs.
I think the more worrisome thing for investment professionals and institutional investors would be the loss of consumer confidence in investing for the long haul. As a majority of people park their money in cash equivalents, this will stunt economic growth, capital raising, and other funding activities. This stunted growth will put a damper on, and elongate, the recovery curve for the economy. Given the recent rise of Robinhood retail day traders, it appears that a majority of market participants that are in the spotlight are not long-hold investors. This suggests that they are moving their money around between investments, simply looking to make a quick buck. This activity will also stunt economic growth potential because the share price of a company becomes less about the forward-looking economic perspective, and rather about artificial pumps up and down based on day-trading activity and volume.
As share prices of the majority of publicly traded companies no longer represent long-term economic outlook for that company, it becomes more convoluted and risky for long-hold investors to factor in that consideration into their investment thesis. Someone who is looking to see economic sentiment for a company via its movement in share price is no longer able to do so, or at least with the accuracy they could have in the past. The problem could be magnified to the point that the potential investor decides not to invest at all, further stunting potential economic growth.
The moral of the story is that we will likely need to see greater investor confidence into the riskier asset classes to realize the potential ‘swoosh’ recovery we are all so highly anticipating.
Quick Takes
Apple set to unveil new products at their annual developer conference - this time in an online format. (via CNBC)
Director of the U.S. Economic Counsel, Larry Kudlow, plays doctor, dismissing rising case numbers across U.S. states. (via CNBC)
Existing home sales take a dive in May. Realtors expect rising numbers in the coming months amid reopenings. (via CNBC)
In the U.S., women are losing jobs at a steeper rate than men are during the pandemic. (via WSJ)
2021 Golden Globes postponed due to coronavirus concerns. (via CNBC)
NYSE looks to shake up the IPO process. (via NY Times)
Multiple news sources hinting at the release of a second round of stimulus checks for the American people.
Reader’s Corner
The reader found a great article to follow up our conversation on debt delinquency here in the U.S., particularly with credit cards. Michael Gayed provides a strong analysis of the situation and its impact for the future. Find that article here on Seeking Alpha.
Behind the Madness
Thank you again for checking in.
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