The past two days have seen rises in the broad indexes
that to yours truly make more sense than the blathering hyperbole of the
narrative that suggests everyday can be attributed to one cause. Well, that’s usually
not how it works. But in theses odd times there is one hook investors should be
looking for in order to “hang their hat on” and that’s the economy, that is if
they can find it.
The Markets
This week the indexes have continued their retracement of
the losses incurred at last months lows. Much of it attributed to the energy
sector for which the retracement was sharper, but the losses were much deeper.
Other more predictable sectors that moved higher were technology companies and
consumer discretionary companies. Both rallies were logical but also seem a bit
premature. I feel this way because movements in the energy and industrial sectors
are a small part of the economy. But the consumer is over 60% of GDP and the consumer
is on hold in many ways impacting the economy. This is important to consider because
it’s the good news that has been leaking, concerning the moderation in cases
and fatalities from the coronavirus, that was more responsible for the sudden
optimism in the equity markets. However, a pickup in consumer activity and the broader
economy are in many ways more difficult to predict. Bonds also retreated from
their interest rate lows, but that had more to do with the government auctioning
off new debt. All together the markets likely had the help of speculative short
covering and some contribution from our Algochums. Therefore, until there is
greater clarity on the virus and especially the economy there is a lot of uncertainty
to weed through and in the meantime, volatility could pay us another visit.
The Economy
There is a lot of stimulus in the works and even more coming
off the shelf soon, domestically and internationally. So far this week only a
few indicators were released showing declines in sentiment studies. Consumer
sentiment, as measured by the University of Michigan Consumer Sentiment Index,
is expected to come further off from it’s recent highs and small business optimism
has dropped to its lowest level since 2016, neither of which should come as a
surprise. The same can be said for upcoming data which will be measuring
inflation, probably negative, and further rises expected in Initial Unemployment
Claims, both are to be released on this coming Thursday.
External Events
The principle conundrum occurring in the industry
narrative is whether the lows of the broad indexes have been placed. But as the
markets have absorbed the optimistic news regarding the virus, the economy is
still closed and will be for the foreseeable future. And among the challenges I
see keeping uncertainty at the forefront of investor thinking is complacency. Notably
leading up to the pandemic the often referenced, and busy, Knowledge Economy
has been somewhat dis-empowered by the collective fixation on the virus and its disciplinary
challenges. Even the news and politics are providing secondary interest as
debate tries to slip in and one can easily sense the collective eye rolling of
the public. This includes the next couple of months which will be especially
difficult for many who don’t have a remote job to distract them. I bring this
up because in the world of investment with purpose that we share, each day its worth
noting that if some promise regarding the Virus has had enough of an effect on
the stock market as to have many companies see their shares retrace nearly half
of their year to date loss in value, I stop for a moment and imagine what will
happen when the economy concurs. Wow, just not now.
