March 27, 2020

Staying Prepared

This has been a remarkable week in so much as the markets took back some, but not nearly all, of the recent losses, and with it came the typical self-congratulatory banter from the financial communities’ big players. This left most of us in a quandary that needed more clarity with respect to the recent economic data releases, the Federal Reserve Chairman giving yet another speech on the world in crisis and even familiar bickering in Washington, home of the upcoming stimulus package. In all, I find that owning the sheer weight of our collective cluelessness when it comes to what is going on, and how are we getting past it, the goal of individual help, pharmaceutical breakthrough, and politicians out of the way should give the kind of results an anxious brain is looking for. This week helped a little.

The Markets
The first clue to how the market are now responding to the virus came in the rebound in stock prices after a week of hard declines. But worth noting isn’t so much the markets continued response to the virus, since when it comes to being uncertain, machines and people come up near equally short of facts, the markets instead chose to rally after the stimulus package appeared closer to passing. But even more interesting this week was the release of data from the Department of Labor for unemployment claims. This was because benefit claims rose by 3 million, the largest weekly increase on record. Even during the Fed induced recession of 1982 and the financial crisis of 2008 the largest weekly increase was 695K and 665K respectively. However, the markets response to the outcome was not to collapse, but rather continue to move higher, in my opinion this is important, but also worthy of pause. Whether this was instinctively or practical remains to be seen, since nothing short of a vaccine will assure the most hopeful outcome.

The Economy
The impact of the recent signals that the self-quarantine of citizens is having on economic data supports the Feds recent warning that their actions are aimed at reducing economic and market volatility associated with the expected dramatic data releases. The inclusion of the Feds process of purchasing debt, via institutional trading facilities, otherwise referred to as QE is another band aid  to keep the markets focused on the economy and not the potential for an unfriendly rise in interest rates should any data surprise with a positive outcome. Without getting too complicated this is also a way of supporting the credit markets which have seen substantial stress, especially the heaver debt laden industries such as Energy and Aviation, both referenced in the recent stimulus package. Next week’s employment data will tell us more.

External Events
The US and Europe has promised stimulus, both are in the process of delivering it and the virus has spent another week rising and, so by definition, is a pandemic. But the markets rebounded here and abroad covering up much of the political posturing emanating from Washington, propaganda emanating from China and the slow and steady spread of the virus that has touched both the common and the elite of the world. And continued evidence that states are getting a lot, although never enough, and that treatments and vaccines are being sped through traditional channels, although testing will be slower for greater safety and accuracy. And in the back of people’s minds there seems to be a greater comfort in managing social distance and work from home that has the earmarks of staying around long after this crises is over, and mostly because few accept this is the last pandemic threat of our lives. In the meantime, the stimulus or the return to politics as usual, in my opinion, may have given the public some sense of normalcy. This also suggests, we’re not out of the woods, and the ride will require most of us to see solutions we recognize. And from an investing standpoint that further suggests that while people will eventually have clarity it will most likely be after the fact. However, where the markets are concerned, that kind of clarity has always come, before the fact. As good a reason as any to remain patient.