Morning all.
Plenty of us were surprised by the strength of yesterday’s rally following the terrible jobless claims data, and there’s no shame in admitting that.
To all those who knew it was going to happen, congratulations.
I still believe this rally is overcooked though and it is interesting to note that it stalled at the 38.2 fib retracement of the move down since the highs.
There is still a huge divergence in what Trump is trying to force into reality and what is actually happening, and this is where I think the markets got ahead of themselves.
Even last night during his daily press conference, Trump said he thought the time was coming (….to start opening back up), and this is almost becoming a propaganda exercise which is quite disgraceful.
While Trump is peddling this message, the USA has now overtaken all other countries to have the most infections, hospital doctors are reporting they are being overwhelmed in emergency rooms and more states are announcing stay-at-home lock down measures.
Below is some data from CNBC which shows the current level of population restrictions in the US on the 25/03/20. The nationwide initiative that is in place is the campaign “15 Days To Slow The Spread”, and that is classed as Federal guidance. The rest of it is happening at the State level.
What alarmed be when I saw this was that most states are not under any kind of lock down, with just 18 in official stay-at-home lock down like most of Europe appear to be in, and many other Countries joining this status day-by-day.
Now the following is the update for the following day, and this is why I use strong words like there is a propaganda campaign going on by President Trump.
So while Trump is talking about getting full churches for Easter and people back to work, 2 more states decides things are getting bad enough to tell people to stay home and close all non-essential businesses. It just makes no sense to me, and if you watch some of the daily updates from NY Governor Cuomo, he has been pleading for more ventilators and ordering hospitals to increase their bed capacity by 50%-100% to cope with anticipated hospitalisation needs.
I don’t know if new lows will come, but I can’t get behind the idea that this is the start of a rally to new highs because of the last few days.
Now that markets have had a few days to enjoy the announced stimulus measures I think more attention will turn to the medical situation and US markets will realise that they are a long way from full churches on Easter Sunday.
I’m now expecting weakness into the weekend and talk of the lows being retested to increase which could help turn the bullish sentiment.
I don’t say this just because I think people dying should make markets go down. I think markets have embraced that America will be open for business again very soon and not paying attention to the risks that more of the country could shut down than opens up. This increases the chance of recessionary conditions for the US economy in the months ahead, even if it is only short-lived.
The following chart is interesting as it shows that pricing is currently not all that far under the average when looking at the PE level of the SP500. As can be seen from the period around 2008/09 and 2011 when US was in recession the PE dipped briefly to around the 10 level. With the current level not being all that depressed I’m starting to think this needs go a bit lower if more US states do keep adding to the lock down situation over the next week as this will effect the earnings picture more than current models are probably predicting.
It’s rare that I short markets as I’m a buy weakness/sell strength equity investor but I did open a couple of index shorts last night to partially hedge the portfolio as I feel that markets will open their eyes to the Trump situation.
I might be wrong on all this but I’m happy to voice my opinion and maybe next week will offer up opportunities to buy back into some of those positions I took profit on over the last couple of days.
Thanks for your time, stay safe.
$SPX500 $NSDQ100 $DJ30
