WASHINGTON – Just when it looked like Mr Market would stage another one of his famous Friday Fizzles, a terrible weekly unemployment report hit the pre-opening new wires. Now stocks would plunge to new depths, for sure. Not. All three averages, the Dow, the S&P 500 and the tech-heavy NASDAQ took off like a shot. Stocks remained buoyant for much of the day. And at Friday’s closing bell all three closed up between 1.5% and nearly 2% (for the long-suffering Dow). Meanwhile, slowly but surely, we are watching people in at least some states as they get back to work. Is Mr Market sounding the all-clear signal. Is it morning in America already?
Negative economic news, anti-Trump narration hide the bear market’s silver lining
CNBC, being an NBC property, led with the following negative news online Saturday morning. But you can still detect a flickering bit of optimism here.
“A record number of Americans just lost their job, and yet stocks are moving higher. This seems paradoxical given the economic toll — to say nothing of the emotional toll — on millions of people across the country without a job…
“The April figures — which saw a record 20.5 million Americans lose their job[s] — is from the height of the crisis. Since then, economies have begun to reopen. There is still a long way to go, of course, but the market is discounting what’s going to happen six months from now, when most states will be getting back to business.”
Just last week, due to some significant weakening in April’s surprise rally, pessimistic stock gurus opined that the spring rally had likely peaked. Yet stronger-than-expected trading action this week brought that Morning in America vision back to Wall Street. But why the resilience? Are traders and investors nuts? Will unemployed or furloughed Americans get back to work soon?
But isn’t the coronavirus going to kill us all. And bring socialism to America at last?
Does Mr Market see a brand new Morning in America?
No matter, said Mr Market on Friday. His impressive, pro-capitalist rally followed right on that dismal Friday unemployment report that gave us the worst US employment numbers we’ve seen since the Great Depression. What gives?
Since at least the turn of the 21st century, that peculiar Wall Street mantra “bad news is good” persists even today. It serves as a reliable (though not infallible) touchstone predicting better markets ahead. In some ways this makes sense. Most market pros acknowledge that stocks and market averages tend to serve as a leading rather than a lagging indicator of the Economy Yet To Come. Historically, the lead-time of the market’s predictive powers ranges from 6-9 months in advance of any anticipated move. This adds considerable weight to the “bad news is good” theory.
In other words, the persistent ability of the stock market to rally in the face of economic Armageddon and occasional, massive sector crashes tells us this today. Specifically, stocks think we’ll be out of the woods and back to some semblance of the Old Normal somewhere between Thanksgiving 2020 and Q1 2021. If so, that would be one hell of an epic recovery.
Mr Market gains attitude despite the media’s dedication to reporting only bad news
By the beginning of May 2020, market averages had erased all of the spectacular gains they’d logged earlier this year. But as of Friday’s closing bell, the tech-oriented NASDAQ turned positive again on the year. The S&P 500 made another attempt, not quite successful, to hit and (hopefully) its April high. Only the Dow lags behind, due mainly to significant weakness in the major oil stocks in this index plus the ongoing disastrous performance of Boeing (trading symbol: BA) for reasons most American already know. As in the grounded 737 MAX.
All in all, all 11 of S&Ps formal market sectors gained altitude this past week. Meaning that, while some nasty air pockets may still lurk in this market, all of us may not really die after all. No matter what CNN, MSNBC and America’s socialist party tell us 24/7.
What do the market’s top comeback sectors tell us today?
Right now, the top-performing S&P market sectors are the following.
- Information Technology
- Communications Services
- Consumer Discretionary
Somewhat worrisome: Information technology currently rules on the backs of just a few big name stocks. We mean Google (GOOGL and GOOG), Apple (AAPL), Microsoft (MSFT) and Facebook (FB). Many other stocks in the tech sector continue to do well, but the big buying panic generally involves these names.
Naysayers claim this big-name leadership phenomenon is a “tell,” indicating that Mr Market has gotten a divorce from reality. But others in the investing game, including this writer, think stocks are already predicting a much more robust return to the badly interrupted Trump Rally much more quickly than anyone had imagined.
Is the recovery already beginning?
In the first place, each week’s reported job and unemployment figures look backward. Mr Market always looks forward. He always wants to get ahead of whatever he thinks will happen in the near future. Having regained roughly 25-30% of this spring’s tremendous bear market losses, stocks seem (at least today) poised to make another run – soon – at regaining their late-winter / early spring 2020 highs.
Further, the big job losses, and now some big name retail bankruptcies, seem primarily concentrated in the travel, leisure and hospitality sectors. And energy. These sectors will come back. But slowly, more slowly than the others.
As for other sectors? If the current, ongoing and massive government stimulus program causes the desired positive outcome, we might achieve that additional 24-30% gain much sooner rather than much later. Leading to a brand new Morning in America.
Is the worst of the spring’s market crash finally over?
Aside from the highly restrictive preventative regimes thuggishly put in place by several Blue State governators, American optimism has begun surfacing again across the country. Many states are now loosening the stifling “shelter-in-place” regimes, some more quickly than others. Florida and Georgia among others have been ahead of the pack on this. But even California is giving in to intense, building pressure by its citizens, many of whom live in the state’s vast, rural interior where Covid-19 has scarcely proved an issue at all.
America’s political and economic re-awakening already underway
Re: America’s re-awakening, one CNBC guest points out one key aspect of the economy’s recent swan dive that no reporter to my knowledge has bothered to consider.
“‘The market knows that the job losses are self-inflicted due to the widespread shutdowns,’ Bleakley Advisory Group chief investment officer Peter Boockvar told CNBC. ‘Thus, now that we are beginning the reopening process the market assumes many of these people will hopefully get hired back over the coming months and quarters.’
“Additionally, 78% of those who lost their job in April said they were furloughed, meaning the unemployment in theory will be temporary. Goldman strategist Jan Hatzius said this is an important distinction to make, given that it suggests the recovery will be swifter.
“‘If job losses are concentrated in this segment [furlough], it would increase the scope for a more rapid labor market recovery when the economy eventually rebounds (because employees can be recalled to their previous jobs, as in several past recessions),’ [Boockvar] wrote in a note to clients ahead of the [jobs] report.”
The media won’t focus on these sleeper facts, the ones they won’t let you see. They and their Democrat clients already think they’ve got their wish: Economic destruction on the eve of Election 2020. They figure that’s the only way to oust that dangerously troublesome interloper-president, Donald J. Trump. Sadly, they could be right.
But maybe not.
Is Trump done for? Is the American economy done for? Or will it be a new Morning in America?
In a potentially related matter, the dam bursting on the Obama Administration’s likely direct involvement in an unprecedented coup attempt against Obama’s surprise successor may soon come into political and fiscal play. Combine this with an economy on the verge of a dramatic comeback, beginning some time late in the second quarter. And we may yet see Trump body slam his clueless, entitled tormenters yet again. If so, stocks, bonds and real Americans will have a chance to rejoice yet again. All of us with IRAs at risk should consider another 4 years with the current president if they want to keep their retirement savings on a sustained path of growth.
So, whatever their politics, it looks like smart investors are betting on this postive and clearly bullish outcome. Morning in America. And not Armageddon.
– Headline image: What will Mr. Market pull out of his hat today? (Video screen capture of classic Bullwinkle J. Moose routine. Image © Jay Ward Productions [undated]. Fair use of lo-res image.