June 24, 2020

We’ll get There

“Narcissism is alive and well, humility is around the corner”

-Me (written on February 28th, 2020)


The markets have chosen to continue a consolidating trend that began at the beginning of the month. The measures that most attentive investors tend to, such as technical and fundamental avenues of analysis, were showing a market overbought and too dependent of unforeseen economic challenges. I bring this up because I’m a lifelong advocate of using technical analysis as a means of determining the probable outcome of an index given a particular formation. In short, I know when a market is overbought, but I never know what’s going to take it down. That’s when cash comes in handy.


The Markets

Even with today’s 2.59% decline in the S&P 500, modest compared to last week 7% decline, there has yet to appear a reasonable change in attitude. Indexes, except the NASDAQ, are still down for the year and a commonly observed indicator called the VIX (Volatility index) remained at levels that the past few year suggested further to go in the rally. I don’t necessarily disagree with those observations, but the uncertainties that surround corrections are still worth paying attention to, especially the form they take. For example, Europe has been showing some measurable vigor this month following last months stimulus package. And with the exception of a few unsurprising blunders from Washington, Phase 1 of the China trade deal remains intact. These are good indicators, yet those markets have joined in this month’s retracement, and that brings us to the pandemic and the realities of reopening of economy.


The Economy

The world economies have all been making attempts to strategize a reopening of their respective economies. Aware of the health dangers involved, the process was on the heels of both stimulus and recent declines in cases of the virus. But also followed by positive economic data beginning with the unexpected increase in private sector payrolls. This was followed by brave attempts of the Fed to stay the course, then a 17.7% rise in Retail Sales, Industrial Production increased 1.4% and the interesting release was Housing Starts, which rose 4.3%. Housing Starts is an interesting piece of data, because the positive trend is rebounding from levels that are still down 23% for the past 12 months. But with New Building Permits also strongly increasing 14.4% the cause becomes clearer. There is statistical evidence from the National Association of Realters that people are moving from the cities, accelerated by protests, but also by the need for more desirable living space. All in all it seems that there were genuine pockets of strength appearing the economy, but then the pandemic returns. In my opinion, the massive movement of people cross state, protests, political rallies, reopening and the like, as well as a surge in national testing, have all have contributed to the increase in new cases of the virus. Next month it will take some continuity of data to reassure investors, for now the best strategy is to let the 2nd Quarter finish out and new information about the economy and business enter the narrative.


External Events

I’m not surprised by so much social activity taking place in the country, counter to more passive sectors the population. It is after all an election year and it’s going to take a lot of patience to get through the dense rhetoric of the politicians and the media. And while the markets can easily ignore those disruptions, the pandemic, and the uptick in new cases, shouldn’t be ignored. But in my opinion that’s because both are mutually exclusive, namely I choose to listen to the scientists, not journalists, and the technical analysts, not the economists, and most of all try to listen to only those, like us, who have skin in game. Its surprising how much can come from those resources.

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