Morning all.
Firstly, thanks to everyone who joined in my thread yesterday (on eToro) to discuss whether the new bullish tone from Wall Street was the way to go. Yesterday certainly was a very strong day for the bulls and that view did come across from many in our discussion.
I was just listening to Josh Brown on a CNBC clip from yesterday when he mentioned that markets have just had their best 15-day run since 1933.
The strength has been quite astounding, powered in large part by the FED and government bailout promises, but also by a growing bullish expectation of economic recovery when the globe starts to relax lock down measures.
Looking at the $NSDQ100 yesterday took it into the higher levels of the December santa-claus type rally and I still can’t get my head around justifying this. Just think back to the headlines and economic talk in December compared to what we are looking at now.
I remain convinced that these markets have run too far too fast and are overly optimistic as the speed and strength of economic recovery in the absence of a virus vaccine.
Even though GS has a 3,000 target for the SP500, they also managed to say that the downturn will be 4 times worse than housing crisis and that unemployment could hit 15%. They also go on to say there will be an unprecedented recovery but when unemployment gets that high consumer spending is going to be very different to what is was towards the end of last year and I think that is the kind of event that can create a negative feedback loop into weakened new job creation.
The idea that the US economy can be back firing on all cylinder by Q4 does not makes sense to me and at some point economic projects and company earnings forecasts will need to reflect this if I’m right.
The global economy is also very interlinked, so if a forecast for the UK to see a 35% GDP decline come to fruition, import demand in the UK is likely to be very weak for a while, imparting a demand export effect on many countries around the world. Take this scenario, on varying magnitudes, and apply it to every country involved in substantial international trade.
The last 10% of this recent rally was a surprise to me, so there is obviously scope for me to be proven wrong again but I still think caution is advised. I’ve taken some profits as the markets have powered higher and built a bit of cash and added to some hedges in case there is a rollover of this rally.
I didn’t write my planned article on embracing market weakness yesterday as watching a strong surge in stock prices kind of ruined the vibe[!] but I will work on that today as while we might not get the flat-W I was suggesting before, the chance of a W still exists and I’d like to discuss that prospect.
Stay safe, thanks for your time.
$SPX500 $UK100 $DJ30
