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.
