361 Capital Market Commentary | June 15th, 2020
Time for a pause. I am not a fan of that much volatility in such a short period of time. I have never seen the market move from short-term overbought to short-term oversold in a three-day period. In fact, no one has ever seen it because it has never happened. (And, it has only happened twice in the last 93 years over a four-day period.) The rise in COVID cases, the FOMC meeting, and the Robinhood traders are getting all the blame; but I don’t think that was the cause. Some very big strategies are rolling hundreds of billions of dollars around the markets causing seven trillion dollar weekly swings in global equities. Too much volatility is not typically a good thing for long-only portfolios. So, time to take a pause, reduce some risk, sit back and watch until the skies clear.
The market has plenty of issues to analyze right now:
- The strength of this economic recovery. The TSA data, June’s Empire Fed Manufacturing and all housing data points are showing a solid recovery off of the COVID lows.
- COVID cases/hospitalizations/deaths. Nationwide numbers are improving daily, but pockets of outbreaks are occurring in some of the cities and states that re-opened early. As a result, states such as Oregon, Utah and Tennessee are re-evaluating their re-opening plans.
- Social unrest incidents and protests continue to impact the recovery.
- And closely related, the Democratic blue wave in November is beginning to look more like a tsunami with each passing day which could worry some investors.
- Congress and the White House are working on a next round of COVID economic stimulus. But fiscal worries are now taking out its negative impact on the U.S. dollar.
- One constant is that the Fed remains uber committed to stimulating the markets. They even went so far last week as to admit that bubbles are good because they help people find jobs.
Hopefully by the end of the month, we will have enough new data and reads to increase, or decrease, our risk appetites going into the July earnings reporting season. But until then, play it safe, both with your long portfolio exposures and with the virus.
Robinhood investors are not helping the Stock Market…
Barclays dug into the stock holdings of Robinhood customers since March 2020 and learned that as its customers moved into a new holding, that stock tended to perform worse, not better, than the average stock. They also learned that its customers adding shares has not helped the S&P 500. But Hertz would like to thank all Robinhood accounts for giving it another chance to find bankruptcy financing.
Wonder if one of the largest, most successful hedge funds is causing some of the market’s current ripples…
There was a FOMC meeting last week. It could have not been more dovish…
Goldman Sachs moves it reopening scale from 1 to 2 last week…
While great that this doubled, it is based on a scale of 10, so don’t get too excited.
Likewise, air travel data shows a solid rebound week-over-week, but the numbers are still down 80% year-over-year…
Tom Lee suggests that air traffic numbers could normalize in August…
The trendline of TSA passenger traffic implies a recovery to pre-COVID-19 levels by August. “We realize this sounds ludicrous. And we do not necessarily think what will happen. But the rising mobility of Americans suggest that industry experts may be too negative..”’- @fundstrat