Happy Days Are Near Again

Happy days are near again. Stocks rose in yesterday’s session on optimism that the virus may be beaten quickly. Investors drew comfort in declining new cases of COVID-19 in hard hit Italy, Spain, and Seattle.

 

N O T E W O R T H Y

 

Un-curbed enthusiasm.  The past several days of market action are a demonstration that stocks are not driven by internal value alone.  In fact, over the past week, emotion and crowd psychology have ruled.  This type of emotion usually provides long term investors with great opportunities… that is if the emotions drive investors to sell indiscriminately.  In this case emotion has caused investors to buy.  The swift rally from last week along with yesterday’s positive move has left many of us searching for tangible evidence to justify the sharp upward moves. So here is what we got.  Stuff to be happy about: labor is going to be cheap after the virus is over as many will be happy to return to a job (greater supply means lower labor costs for companies), commodity prices and materials are cheap and at historical lows lowering production costs, lots of liquidity at low interest rates make borrowing cheap and easy for companies, low yields from fixed income will make stocks look more attractive going forward, and the large amount of Government stimulus (kudos to Washington’s swift and appropriate financial moves so far).  Things that go bump in the night:  the virus is far from being beaten and its potential growth path is still speculative, companies are just beginning the struggle of shutting down taking drastic measures like furloughing employees and cutting dividends in order to stay solvent, earnings disappointments are just around the corner and will affect more than just the obvious industries (remember that the economy is a big eco system so when the fish die, so do the sharks that eat them), the Fed released a research paper warning that 47 million job losses may result from the economic slowdown (though it didn’t seem to make the headlines yesterday), people fortunate enough to remain employed will likely temper consumption as is typical during times of crisis, crude oil (enough said), and consumption patterns will change drastically going forward (e.g. companies will rely less on air travel, consumers may take a more utilitarian approach favoring basics over luxury, more focus on gig economy, etc.). What this all amounts to is that things will get better in the future but the path to that future will be a rocky one.  One final thing to note is that economies and stock markets typically enjoy long periods of prosperity following dramatic contractions, which is why long term investors who stick to their core investment strategies always win.  Patience will be rewarded.

 

THE MARKETS

 

Stocks traded up yesterday as traders were happy to hear that China is getting back to business and new daily virus cases may be peaking in hard hit areas in Europe.  Pharma companies and healthcare providers announced breakthroughs in testing and vaccine potentials adding to the bullish mood.  The S&P500 rose by +3.35%, the Dow Jones Industrial Average climbed by +3.35, the Russell 2000 advanced by +2.33%, and the NASDAQ Composite Index traded up by +3.62%.  Bonds traded up slightly and 10 year treasury yields ended the session at 0.72% up by +5 basis points.  Crude oil was down by -6.6% yesterday with futures trading below $20 during the session.  Crude prices have not been this low in 18 years. WHILE YOU SLEPT, the President spoke with Vladimir Putin in an effort to curb the OPEC+ infighting which was a factor in the recent price drop.  The news gave oil futures a slight boost.

 

NXT UP

 

– S&P Case-Shiller Home Price Index is expected to have grown by +3.23% year over year in January compared to December’s +2.85% growth.

– Chicago PMI (March) is expected to have dropped from 49.0 to 40.0.

– Conference Board’s Consumer Confidence for March may have fallen to 110.0 from 130.7.

– Boston Fed President Eric Rosengren will speak today… virtually of course.

 

daily chartbook 2020-03-31

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