“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.
