Eq: Total Market
(New York)
In what comes as a very important announcement right now, Goldman Sachs argues that the stock market has not bottomed, and that it will take three things happening for the nadir to arrive. In order for markets to reach a bottom and start to sustainably rise, Goldman says case numbers must start to fall, there must be evidence that Fed and Congressional efforts are sufficient to support the economy, and investor sentiment and market positioning must bottom out (which has not even close to happened yet, according to GS). Goldman expects the S&P 500 to finish the year at 3,000.
FINSUM: We agree with the first two points (about case numbers and stimulus), but the third argument about positioning seems circular to us, as it relies on the markets getting worse before getting better.
(New York)
All the predictions in the market are about how steep the recession in Q2 will be (we think people should also be considering the Q1 numbers!), but a new paper has been published looking back at the economic effects of the 1918 pandemic. The surprising finding is that strong shutdowns did not actually hurt the economy as much as thought. In fact, the areas that undertook the strongest and swiftest shutdowns, had the weakest drops in output and the quickest recoveries. The average US location suffered an 18% downturn from the pandemic. However, the researchers (two from the Fed, one from MIT) summed up their findings this way, saying “Cities that implemented more rapid and forceful non-pharmaceutical health interventions do not experience worse downturns … In contrast, evidence on manufacturing activity and bank assets suggests that the economy performed better in areas with more aggressive NPIs after the pandemic”.
FINSUM: While this is not the most compelling evidence (given it is 100 years old), it is encouraging to consider that those taking swift action might not see the worst consequences.
(New York)
One of the hardest things to do in a crisis is to sit back and let one’s mind relax enough to think creatively and see the big picture. This has been particularly hard to do in the fog of the coronavirus, which is not just a financial/economic crisis, but primarily a health emergency that has disrupted our everyday lives more than in any period since WWII. So what are some of the long-term economic, and thus market, consequences of this virus? We believe the main outcome of this huge lockdown is ultimately going to be more consolidation of power by large corporates. As Main Streets across the US are cleared out of small business that do not have the capital to survive, American consumers will be ever more incentivized to look online and to existing behemoths (who have the resources to weather this storm). As a very short-term example, think of the 100,000+ workers will will quickly migrate from Main Street retail/service sector jobs into employment for Amazon; the consolidation that is happening in employment will front-run consumer spending.
FINSUM: As sad as it may seem, we see this lockdown as a big tailwind for the S&P 500 over the next few years, as this is the kind of crisis that will wipeout small competition and concentrate revenue in an ever smaller group.
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(New York)
Markets have been on an extraordinary run over the last three days. 20%+ for the Dow and a measly 18% for the S&P 500, technically ending the bull market. It was the best three-day run since 1931 (in itself a bleak reference). However, many on the street think this rally was too bullish too fast, as we are arguably not even to the worst of the health crisis, and certainly not in the worst part of the coming economic slowdown.
FINSUM: We are going to have at least two quarters of awful earnings and several months of terrible jobs data, so there is a long way to go. This seems like a stimulus-euphoria/dead-cat bounce rally.
(New York)
Today is a stark reminder of the differences between the view from Main Street and the view from Wall Street. US weekly jobless claims were leased this morning and broke the all-time record of weekly losses by almost 500%. The previous record was 695,000 jobs lost in 1982. This week’s figures was 3.28m. Yet despite the shockingly grim number, stocks are rallying heartily as investors bet the government’s stimulus will be a cure-all.
FINSUM: This is a great example of how the market only cares about actual vs predicted numbers. Investors figure the 3.3m losses were already priced in, so presumably there is upside. The reality of where things head is anyone’s guess.
(New York)
Yes, the market had an unbelievable day yesterday. It was so good in fact, that it reminds one of all the things bad about the current situation—markets don’t rise 11% unless there is a huge crisis going on. At the time of writing, markets are pretty flat today, but tomorrow could be a doozy. US weekly jobless clams get released tomorrow morning and will be one of the first tangible signs of how the economy is trending under the coronavirus lockdown.
FINSUM: Many analysts are saying we might hit 30% unemployment, depending on how long this general virus lockdown lasts. Tomorrow could be the first sign of things to come and markets may react sharply.