March 24, 2020

Not Yet

“My expectations were reduced to zero when I was 21. Everything since then has been a bonus."
-Steven Hawking

The US markets had a very good day today, but it’s neither the first good day in a month nor that last, only another in an overall negative environment fed by uncertainty of economic conditions and the pre-dissemination of a stimulus package, as soon as said package is passed of course. And add to that talk being circulated that a sooner return to normal, whatever that is anymore, could happen. In short, all of this isn’t business as usual, its behavior as usual, and the more of that which fills the airwaves with endless click bait the more I lean towards, not yet.

The Markets
The rise in the broad indexes probably had as much to do with short covering as with lots of cash monetization, and perhaps some picking of equities that did especially well. But when the Dow Industrial Index rises 11.37%, everything appears to have a reason, one should consider whether that reason is just recouping market losses or the expectation of a company benefiting in spite of the current economic conditions. Tech names such a Nvidia (NVDA) and cyber security specialist CyberArk Software (CYBR) have a reason to move higher and their respective areas of tech warrant it. But dividend companies such as Costco (COST) and Verizon (VZ) which have received a pickup in business due to the virus, but also as hiding places for cash eager not to left out of days like today. That strategy didn’t work.

The Economy
The first number to reflect the current environment was the service and manufacturing Purchasing Managers Index (PMI) which came in at 39.1 and 49.2 respectively. The former taking a huge hit from the shutdown of consumer social centers and facilities. Both are below 50 which is a sign of contraction, time will tell if a stimulus package can bring that back up. The Fed this week has also promised to purchase bonds, particularly credit bonds, such as corporate bonds , which have seen prices decline in the face of weaker economic expectations even as US Treasuries remain close to their historic interest rate lows. This was welcome news to the markets and softened today’s negative move higher in rates.

External Events
I would never want not suggest that anything is back to normal, but bickering partisanship, intercountry conspiratorial accusations, and return to election year posturing, seem like it but are not enough, in my opinion, to change the minds of people who are facing genuine financial crisis. Todays’ activity could’ve been our Algochums covering shorts, or just expectations fueling speculation. We all know the hazards of announcing expectations with little evidence to support them, ask the president, and when investing, it’s a hazard. I’ll wait until the markets come down to us again and continue repositioning portfolios for what looks like the beginning of a very different economy.