Displaying items by tag: bear market
Anybody who has paid even scant attention to the market over the last eight weeks has been shocked by what it has done. After dropping 35% from peak, the market has rallied back by almost as many percent over the course of the last 5 weeks. Now, Societe Generale says the comeback is just too fast and defies all previous bear market recoveries. Rebounds from bear market lows tend to be long slogs, with gyrations upward and downward as the market moves slowly higher. This recovery has been a lightning bolt as the market almost sprints higher. However, UBS argues that this recovery could be different, saying “This is a policy-induced downturn, and the speed and structure of the recovery could follow a different route from previous downturns”.
FINSUM: The thing that is really keeping this recovery afloat is the extraordinary monetary and fiscal stimulus that has been injected into the economy. That said, it is likely going to take a LONG time to get back to where we were on February 15th 2020, so a plateau or fall in markets does not seem unlikely.
We are headed towards Great Depression like unemployment, yet the market is rallying. What gives? That is a question everyone is asking themselves. We have already far exceeded Great Recession era unemployment levels and are quickly heading higher. Over 20m Americans lost their jobs in April and more than 33m have lost jobs since the start of the pandemic. The unemployment rate is just under 15%, and most analysts think it will get north of 20%, putting it on part with the Great Depression. Mnuchin himself said we may hit 25%.
FINSUM: We do not think the market has ever had to navigate such a difficult situation in recent memory. On the one hand we are dealing with the worst economy in a century. On the other, there is a temporary nature to this downturn (because it is self-imposed) and the government is doing a lot to stimulate the economy.
The last couple of trading days have thrown cold water on that bullish trend that sent the market soaring all April. Weak earnings and huge job losses took their toll, and the reality of a slow-slog recovery are weighing on markets. With that in mind, a former Goldman Sachs fund manager, Will Meade, says that stocks are going to fall another 40% from here. Meade argues that this year will be just like the 2000 dotcom bubble: “The Nasdaq in 2000 did a similar bear market bounce as stocks this year — dropped 40%, then bounced 42% off the bottom retracing 61.8% of its drop. It stalled then fell 43%, making a new low four months later,”. Similar to 2000 is that fact that there is additional uncertainty this year created by the election.
FINSUM: This is far from implausible. As the reality of how hard this recovery might be sets in, markets may completely abandon their exuberance.
One of the most famous hedge fund managers on Wall Street made a bold warning yesterday. Jeffrey Gundlach of DoubleLine Capital, adored by the media, said yesterday that he thinks stocks will retest their previous lows. “People don’t understand the magnitude of... the social unease... that’s going to happen … We’ve lost every single job that we created since the bottom in 2009”.
FINSUM: One thing that seems certain right now is that consumer spending is not going to bounce back to where it was for some time. It is going to take years for all these people to re-enter the workforce and loosen the purse strings. A recession for the rest of the year appears inevitable.
New data emerging today is for the first time showing the scale of the devastation that has occurred to the US economy. Industrial production fell 5.4% in March, the worst fall since 1946. Headline retails sales fell a whopping 8.7%. Both data points were worse than economists predicted.
FINSUM: What is really worrying here is that large parts of the US were not even shutdown until the very end of March. This means April’s numbers are likely to be a complete washout. Judging by indexes, this scared markets.