Stocks are up, so all is okay…?

Popping the balloon

So, stocks are up and that means all is okay – no I don’t think so.

These big stock market bets on economies re-opening quickly and going back to ‘normal’ are likely lulling us in to a false sense of security. We want it to be good again, of course we do. But let’s fix things properly before we go forward. Betting is not a good solution.

As the Dow reclaims 27000 and goes even higher and as many world indices climb back close to or above their pre-coronavirus levels, investors are betting that the worst is now behind us.

It’s not investing it’s just pure speculation

But how can it be? How can stocks truly reflect the state of economies after they have just suffered a once in a lifetime catastrophic event. True, economies are ‘bouncing’ back, but to what level? How can they bounce back to previous levels so soon?

I believe that economic data reflecting the true damage is yet to be revealed, and by all accounts it will not be pretty. But will this reflect in the stock valuation? It should – but probably won’t. Remember, the Fed and other central banks and governments around the world seem hell bent on pouring even more money into the ‘system’ to prop it up. Long term it appears to me that the ‘financial system’ will never be allowed to fail?

Never say never?

Recession?

We know that the UK, Germany, France, Japan, Australia and now the U.S. are in all recession, amongst many others. And despite better than expected job data in the U.S. – we know that there are close to 30 million people unemployed still.

This is not reflected in current stock market valuation. I understand the markets are forward looking (supposedly), but this stock climb is very reactionary and of the moment, more so than usual.

Let’s experiment

Take note, the value of the Dow as of 8th June 2020 was: 27572 so, let’s see in 3-6 month’s time (that’s probably far enough ahead), if the Dow is above or below this level? We can judge then how far the market was forward looking and how right or wrong it was!

I have my doubts about the recent U.S. stock recovery

The U.S. unemployment rate of 13.3% is still bad, really bad, despite reports heralding the job creation as ‘shockingly’ good! That still means that 18 million jobs were lost over two months, as well as having continuing weekly claims on the rise.

Furloughed workers came back to their jobs far quicker than had been expected. That was the easier bit, the hard part will be the full recovery to previous levels of employment which will take far, far longer.

There have been reports that the data is flawed in that there have been classification errors and the survey response rate lower than usual.  So the real rate of unemployment is likely to be higher.

But regardless, the U.S. press heralds the latest job creation as a great American success.

And my point is..?

My point is very simple. Stock bets are pushing markets up and I strongly feel it is not truly reflective of the ‘real’ situation. Of course, I want it to be fixed and back to ‘normal’ (whatever ‘normal’ is) as soon as possible. But I want the recovery to be based on honesty and I want it to be real and sustainable. I don’t want the recovery to be based on a speculative bet.

Whatever happened to good old fashioned investing?

Bet

I’m worried we might all lose again! Don’t gamble.

Upcoming news events that may move markets this week

Tuesday 9th June 2020

The Fed start their two day meeting Tuesday, 9th June 2020

EU – GDP data due

Wednesday 10th June 2020

China – consumer price index data due

U.S. – consumer price index data due

U.S. – Fed interest rate decision and FOMC press conference due at: 19:00 BST

Thursday 11th June 2020

U.S. – initial jobless claims data due: 13:30 BST – This will be one to watch. Sensitive data! Likely to move markets!

Friday 12th June 2020

UK – GDP data and industrial and manufacturing data due: 07:00 BST

U.S. – consumer sentiment data reading due: 15:00 BST

Other

U.S. officially entered recession as of February 2020 reports suggest

Germany suffers biggest ever fall in exports

UK to start post Brexit trade discussions with Japan

S&P 500 turns positive for the year

EU – eurozone economy contracted less than initially estimated during the first three months of the year, but the decline in output remained the largest on record, reports indicate.

UK – May was another hard month for the retail sector as coronavirus lockdown measures bit hard according to the British Retail Consortium.

Nasdaq back at all time high

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