Todd’s Take on the Market
After an undesirable March where stocks fell the most in decades, they rebounded in April to have their best month in decades—makes sense, no?
As the Coronavirus Pandemic has taken its toll on the economy, here are some of the regional FED reports/surveys:
- New York (Empire): -78 (lowest ever)
- Philadelphia FED: -57 (lowest ever)
- Kansas City FED: -30 (lowest ever)
- Richmond FED: -53 (lowest ever)
- Dallas FED: -74 (lowest ever)
- 3.89 people filed for new unemployment claims
- Q1 GDP DOWN 4.8% – it’s going to get worse
Stocks reacted far more different. It is puzzling really to see how companies, many who came out and said that things were bad (which they have been bad and they are probably going to get worse) have seen their stock prices go up. Think “get out of jail free card” as I have mentioned over the last few weeks.
The world’s economy is basically shut down, OPEC pretty much blew up and fuel/oil prices dropped like a rock where they were giving it away to whoever had a place to store it, the worst GDP print since the Great Depression and Q1 earnings missing by 20%—why wouldn’t stocks go up?
We realize that many traders/investors were understandably expecting a “retest” of the March lows—which could still happen. Is there a gauntlet of headwinds worse than what we have seen in the past 4 weeks? If not, then a retest of the lows is a lot less unlikely.
However, here we are in May, kicking off the supposedly worst six months for stocks; historically, but…
Is the bad news “baked in”, is the government going to save everyone? I think—on the Coronavirus side—a treatment/vaccine/testing will go a long way of securing the “get out of jail free” cards. Was the crash an overreaction? We just don’t know.
We heard from the FED last week concerning probably the least most cared about event of the week and here is what they had to say, “The FOMC citing, ‘considerable medium-term risks’ suggests they do not expect a V-shaped recovery and will be big and bold for the foreseeable future. QE is flexible and open-ended.”
So, as we head into Q2, expect economic activity to fall to an “unprecedented” rate. More and more people will be filing for unemployment benefits or at least those that successfully navigate the process.
In the end, April will be remembered by many for multiple things, including a stark contrast between the economy and the stock markets, historic economic lockdowns, sharp GDP contractions and huge loss of jobs versus a very strong stock market.
I think the biggest risk to stocks in May is a wave of reinfections, but a bigger surprise may be the reopening is a bit of a bust: “Many of us have been saying that a V-shaped rebound is unlikely.”
There are many moving parts and I would suggest you should stay tuned and I’ll keep you posted.
Todd Day, MBA
Portfolio Manager
Horizon Financial Services, LLC
