Morning all.
Japan has just declared a state of emergency, another sign that the world is far from recovery from this virus situation.
The strength of markets is quite surprising, the SP500 is back above a level is was a year ago, and consider how different the circumstances are.
One year ago markets were looking at unemployment going to all-time-lows, earnings growth for the FY expected around 10% and relatively peaceful geopolitics. Now we are looking at huge spikes in unemployment, negative earnings growth of 15-25% by some estimates, big GDP falls across the globe, a world in lock down with a virus killings 10’s of thousands.
Quite the contrast and one that makes it hard to be overly bullish despite the stimulus and buying appetite that seems to be out there right now.
Japan’s state of emergency is set to last for a month and reflects the worsening state of the pandemic that they have been unable to contain.
“We have decided to declare a state of emergency because we’ve judged that a fast spread of the coronavirus nationwide would have an enormous impact on lives and the economy,” he [Shinzo Abe] told parliament earlier.
So while the US continue to push the optimistic story that it will all be over soon and markets happy to embrace the tone President Trump is using, there are dangers to this viewpoint.
I also saw this worrying piece of news which suggests NY are heavily unreporting cases/deaths and so there could be false hope in their stats which have also been a positive catalyst for markets
“An estimated additional 180 – 195 deaths per day occurring at home in New York City due to COVID-19 are not being counted in the official figures. “Early on in this crisis we were able to swab people who died at home, and thus got a coronavirus reading. But those days are long gone. We simply don’t have the testing capacity for the large numbers dying at home. Now only those few who had a test confirmation before dying are marked as victims of coronavirus on their death certificate. This almost certainly means we are undercounting the total number of victims of this pandemic,” said Mark Levine, Chair of New York City Council health committee.
That’s quite worrying if not being addressed and the lack of testing in the US has become an issue in recent days with some critics suggesting that limited tested can be purposely used to reduce new case numbers and generate the flattened curves that everyone is eager to see as a sign the virus spread is slowing. This is very complex and the conflicting views make it very hard to know who is right and wrong.
I’m happy to take profits into this strength but I’m not going to keep everything in expectation that the SP500 races back over 3,000 from here.
Cautiously rebuilding some cash and keeping some hedges in place will hopefully pay-off as I think markets will have to face some realities which will dampen the current buying frenzy.
Stay safe, thanks for your time.
$JPN225 $SPX500 $NSDQ100
