Insights: Market Sentiment

Top News:

8/03: U.S. manufacturing showed a second straight month of rebound in July, after cratering to a low in April. 

 

8/04: Indicative of the extraordinary support lent by central banks worldwide, both Bank of Japan and Reserve Bank of Australia telegraphed their continuing commitment to loose monetary policies.

 

8/05: U.S. and China will reportedly meet to assess the latter’s lack of compliance with the bilateral trade agreement reached in January.  Separately, the U.S. service sector witnessed two consecutive months of recovery in July.

 

8/06: In keeping its benchmark rate steady, the Bank of England cautioned, “Gross domestic product won’t rise to the level it was at the end of 2019 until the end of 2021.”  Meanwhile, dropping for the first time in three weeks, U.S. initial jobless claims slipped to the lowest level since the pandemic’s onset. 

 

8/07: Legal challenges are expected against the opaque U.S. banning of “any transactions” related to Tencent and TikTok.  A broader measure of unemployment known as the U6 suggested the “real” rate in the U.S. was 16.5% in July versus 18% in June.  Finally, Congress remains deadlocked on another much anticipated fiscal relief bill.

 

Heard on the Street:

“With the US and global economies in the midst of one of the deepest recessions and output gaps on record, most investors we speak with have dismissed our call for higher inflation risks…Congress is now in the driver’s seat when it comes to the money supply with its fiscal programs… This is potentially more inflationary than appreciated, which means that back-end rates can rise.”

— Morgan Stanley in a research note as quoted by CNBC on 8/04/2020

 

“Software is not only eating the world, it’s leading the market higher.  Covid has accelerated the momentum and the urgency behind digital transformation… The sector offers phenomenal growth, and right now, the Street is valuing that growth because you can’t find growth elsewhere.”

— Rick Sherlund of BofA Merrill Lynch on 8/04/2020

 

Longer Game:

What do falling cats have to do with investing or running a business?  Plenty, according to Morgan Housel of Collaborative Fund, who notes that “the most universal lesson of 2020 is the value of room for error.”

 

Is this time different? Do valuation levels still matter in the face of new highs in U.S. markets? Kailash Concepts cautions that “if the price paid relative to cash flows is no longer the primary bridge to valuation, capitalism has changed.”

 

Bonus:

In the race to develop a viable vaccine, analysts appear most optimistic on Novavax’s prospects, based upon preliminary neutralizing antibody activity and its more proven technology. 

Top News:

7/27: Moderna announced it has received additional governmental funding to kick off Phase 3 of its vaccine study.  Meanwhile, Germany saw a continuing rebound in business sentiment in July, boosting hopes for a quicker economic recovery in the Euro zone.

 

7/28: U.S. home prices saw a 4.5% annual increase in May, rising at a slower pace than prior month.  Meanwhile, amidst case explosions in hotspots, consumer confidence dipped in July, owing to less sanguine near-term outlook.

 

7/29:  Noting the path of the U.S. economy “will depend significantly on the course of the virus,” the Federal Reserve maintained a dovish stance at its meeting.  CEOs of Amazon, Apple, Facebook and Google testified in front of a House Judiciary subcommittee as part of its antitrust probe.

 

7/30: In the worst quarterly plunge ever, U.S. reported 2Q GDP shrank 32.9% on an annualized basis. Moreover, new and continuing jobless claims rose in the latest weekly tally, a stark reminder of the long recovery ahead.

 

7/31: The Fed’s preferred price pressure barometer showed inflation remaining tame.  Separately, another consumer survey for July was revised lower “due to the continued resurgence of the coronavirus.” Such negative news notwithstanding, strong earnings posted by Amazon, Apple and Facebook anchored the market.  Finally, EU’s 2Q GDP contracted 14.4% versus one-year ago.

 

Heard on the Street:

“The negative relationship between long term US real yields and gold futures has held up fairly well over the longer term. That is because when long term US real yields increase, gold is less attractive relative to US interest bearing securities since gold has no income earning ability.  The fall in US 10-year real yields is primarily being driven by an increase in US 10 year inflation expectations.”

— Vivek Dhar, analyst at Commonwealth Bank of Australia, as gold reached record high on 7/27/2020

 

“Our view is that gold is only appropriate if you have a very strong view that the U.S. dollar is going to be debased. We don’t have that view. We think the dollar maintains its status as the reserve currency. The dollar can cheapen a little bit because it’s moderately overvalued but that doesn’t mean that it’s going to be debased, that we are going to have huge inflation and that gold is a good substitute.”

— Sharmin Mossavar-Rahmani, CIO of private wealth management at Goldman Sachs on 7/30/2020

 

Longer Game:

Echoing others on concerns over the “soundness of our money,” Ray Dalio of Bridgewater Associates, founder of the world’s largest hedge fund,  warned of the implications of a U.S. capital war with China.

 

Bonus:

Two renowned U.S. infectious disease experts shared sobering thoughts on: 1) why vaccines may not be the panacea for a return to normalcy, and 2) the need to adjust to “living in a 24-7 Covid world.”

Top News:

7/20: A joint vaccine candidate from AstraZeneca and Oxford University produced positive responses in ongoing trials.

 

7/21: In a significant step towards stronger fiscal coordination, the 27-nation EU agreed on a EUR750 billion stimulus plan.

 

7/22: In a move certain to escalate tension, the U.S. ordered the closure of a Chinese consulate “to protect American intellectual property.”  Meanwhile, Pfizer and BioNTech received from the U.S. government a conditional order of 100 million doses of its joint vaccine, expected to be delivered by year end.  Finally, U.S. housing market rebounded as record-low mortgage rates spurred home loans and existing-home sales.   

 

7/23: Snapping a 15-week streak of declining initial jobless claims, the latest unexpected uptick comes at a time when Congress is debating additional fiscal stimulus.  Separately, Conference Board’s Leading Economic Index showed improvement in June, though “conditions still point to a weak economic outlook.”

 

7/24: Latest diplomatic tit-for-tat in U.S.-China relations and disagreement in Congress over additional coronavirus relief cast a pall over investor sentiment.

 

Heard on the Street:

“We’ve had a melt-up and that’s very visible in valuation multiples. Stocks are not cheap… We’re seeing major states reversing the reopenings of their economies. So, all this good news we’ve gotten in May and June on the economic front, including even the unemployment numbers, is vulnerable.  On top of all that we’ve got an increasingly and potentially dangerous conflict between the United States and China escalating again.”

— Ed Yardeni of Yardeni Research, in a CNBC interview on 7/19/2020

 

“My bearish view that an overvalued dollar is ripe for a sharp decline reflects two strains of analysis: America’s rapidly worsening macroeconomic imbalances and a government that is abdicating all semblance of global leadership. The July 21 breakthrough in Europe, and what it means for the euro, only deepens my conviction.”

— Stephen Roach, former chairman of Morgan Stanley Asia, in an op-ed on 7/22/2020

 

Longer Game:

As governments worldwide confront gaping holes in their fiscal budgets, wrought by the pandemic, one observer is already proposing taxing the $36 trillion held in tax havens as a source of funding.

 

Aaron Brown, formerly of AQR Capital Management, argues the need for more attractive tax incentives and lower fees for 401(k)s, the backbone of many working Americans’ retirement.

 

Bonus:

Chair of global research at J.P. Morgan, Joyce Chang highlights the acceleration of four paradigm shifts affecting the financial markets: 1) zero percent Treasury yields; 2) unprecedented balance sheet growth at central banks; 3) escalating competition between the U.S. and China; and, 4) deglobalization and resilience of populist governance.

Top News:

7/13: Pfizer and BioNTech announced two vaccine candidates have received “fast track” designation from the FDA, bolstering hope that mass production may begin by year-end.

 

7/14: Largely due to higher gasoline prices, the Consumer Price Index rose for the first time in four months in June.  At less than 1%, inflation remains a distant worry, however.

 

7/15: Publishing an interim analysis in The New England Journal of Medicine, Moderna reported its vaccine candidate “elicited robust neutralizing antibody results.” Meanwhile, economic activity increased in almost all districts of the Federal Reserve, yet remained well below pre-pandemic levels, according to the latest Fed Beige Book.

 

7/16: Avoiding a recession, China registered a 2Q GDP growth of 3.2%, driven largely by industrial production despite anemic retail sales.  Indicative of a problematic job recovery, U.S. reported stubbornly elevated continuing jobless claims of 17.34 million.  Separately, retail sales in the U.S. rebounded for a second straight month in June, albeit at a meager annual rate of 0.3%.

 

7/17: According to the University of Michigan’s preliminary July survey, consumer sentiment receded more than expected, in conjunction with the renewed surge in coronavirus cases.

 

 

Heard on the Street:

“The investing challenge may well shift in the months ahead from riding an exceptional wave of liquidity, which lifted virtually all asset prices, to steering through a general correction in prices and complex individual nonpayments… Liquidity-driven rallies are deceptively attractive and tend to result in excessive risk-taking.”

— Mohamed El-Erian of Allianz, in an op-ed in Financial Times on 7/13/2020

 

“There are clear signs that the longer-term damage is beginning to mount, with permanent layoffs beginning to climb, and the flow of workers from employment to unemployment still elevated.  Moreover, absent a vaccine, the need for ongoing physical distancing will prevent a full recovery.”

— Michael Pearce, senior U.S. economist at Capital Economics as quoted by CNBC on 7/16/2020

 

 

Longer Game:

With the US’ formal rejection of China’s maritime claims in the South China Sea, Prof. Minxin Pei of Claremont McKenna College argues the convergence of added pressures may spell a tumultuous period for the world’s second largest economy.

 

Is a regulatory reckoning coming for the Mount Rushmore of Big Tech–Apple, Amazon, Google, Facebook—whose combined market value exceeds $5 trillion?

 

 

Bonus:

According to Bank of America’s monthly survey of 210 institutional investors as of July 9^th, U.S. tech stocks remain the most “crowded trade,” along with added allocations to pharmaceuticals, cash, and commodities.

Top News:

7/06: Global equity markets took cues from China, where a bullish editorial in state-run media sent the Shanghai Composite Index soaring 5.7%.  Separately, June’s ISM Non-Manufacturing Index, reflective of the all-important service sector, saw the first expansion in activity since March. 

 

7/07: Novavax announced a $1.6 billion investment from the federal government, joining seven other candidates in the public-private partnership to produce a vaccine.

 

7/08: Registering yet another single-day high of newly confirmed Covid-19 cases, the U.S. has reported about 60K new cases on average over the past 5 days, itself also a record.

 

7/09: While trending lower, the weekly jobless claims report remains disheartening; for the 16^th week in a row, new applications for benefits exceeded 1 million.

 

7/10: The Producer Price Index unexpectedly declined in June owing to ongoing meek demand.  Nevertheless, investors cheered as Gilead released more encouraging data on its investigational antiviral.

 

Heard on the Street:

The tug-of-war between governmental stimulus, re-opening progress, vaccine hope and market valuations continues to grip analysts:

“While the pace of reopening will slow, there is little appetite for the sort of extreme lockdown measures that were implemented in March. The U.S. Congress will ultimately extend fiscal support for households and firms. Around the world, both fiscal and monetary policy will remain highly accommodative, which should provide a supportive backdrop for stocks.”

— Peter Berezin, chief global strategist at BCA Research as quoted by MarketWatch on 7/06/2020

 

“Barring a big shock, it is improbable to think of a trading range for the S&P 500 in the 2,500-3,000 area, but more likely in the 2,700-3,200 vicinity as monetary policy will be in place to prevent a 20% or greater decline… We envision volatility for equities as good news is being priced in and problems are being overlooked.”

— Tobias Levkovich, Citi’s chief U.S. equity strategist said, according to MarketWatch on 7/07/2020

 

Longer Game:

In its efforts to prop up market confidence and ensure smooth flowing of credit, the Federal Reserve has increased its balance sheet to $7 trillion, three times the size at the height of the Great Recession.  This unprecedented ballooning may precipitate: 1) displacement of the U.S. dollar as the world’s reserve currency (Ray Dalio of Bridgewater Associates), and 2) distortions in how assets are valued (Dalio and Jeffrey Gundlach of DoubLine Capital).

 

Bonus:

Lancet published a large-scale study in Spain, which showed herd immunity through natural infection was “unachievable” as a strategy against Covid-19.

Top News:

6/29: Based on contract signings, pending home sales jumped 44.3% in May, reversing two straight months of decline.

 

6/30: While remaining well below pre-pandemic levels, the Conference Board Consumer Confidence Index showed better than expected improvement in June.

 

7/01: Pfizer and BioNTech announced “encouraging” preliminary data on their joint vaccine candidate.  Separately, U.S. manufacturing activity in June expanded for the first time since February.

 

7/02: Reflecting data as of mid-June, the US Labor Department reported a stronger than expected monthly employment situation.  However, excessive optimism was tempered by the latest increase in weekly continuing jobless claims (6/27 report).

 

7/03: Reaching yet another grim milestone, U.S. reported a new all-time high for Covid-19 cases recorded in a single day.

 

Heard on the Street:

“The path forward for the economy is extraordinarily uncertain and will depend in large part on our success in containing the virus. A full recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities… In March, we lowered our policy interest rate to near zero, and we expect to maintain interest rates at this level until we are confident that the economy has weathered recent events and is on track to achieve our maximum-employment and price-stability goals.”

—  Federal Reserve Chairman Jerome Powell in House committee testimony on 6/30/2020

 

“We are in a much better place right now than we were at the end of last quarter. We started the recovery with two strong months here of the recovery in data for May and June. And we also have a lot of policy support on both the monetary and the fiscal side. So the conversations we’ve been having is to start to take a bit more risk in the portfolio, being a bit overweight equities versus bonds, starting to think about cyclical sectors and regions within equities, starting to think more about corporate credit on the bond side. But at the same time we’re also thinking [that] the second half is not going to be easy so we want to avoid the extreme of going to overweight risk.”

— Gabriela Santos, global market strategist at J.P. Morgan Asset Management as quoted by CNBC on 6/30/2020

 

Longer Game:

Public finance observers are beginning to assess the economic impact of Covid-19 on states and local governments. A sobering Cleveland Fed analysis predicts cuts in essential services relied upon by most Americans (here for an abbreviated treatment of study).

 

Bonus:

In an interview with the Journal of American Medical Association, Dr. Anne Schuchat, principal deputy director of the CDC, provided a stark assessment of where the U.S. stands in the current epidemic.  She warns, “We are not even beginning to be over this.” 

Top News:

6/22: With existing home sales in May down 26.6% annually, the largest decline since 1982, the National Association of Realtors is hopeful that the cyclical low may have been reached.

 

6/23: May’s rebound in new home sales bolstered expectations of a housing recovery, given the tight supply of existing homes for sale, low rates, and pent-up demand.

 

6/24: Following fresh highs at the NASDAQ yesterday, investors paused to consolidate gains in light of new Covid-19 cases, IMF’s further downward projections for the global economy, and renewed trade tension with Europe.

 

6/25: While both sequentially lower, stubbornly high numbers of new and continuing claims were confirmed by the weekly jobless claims report.  Separately, May’s durable goods orders snapped two straight months of decline as states initiated gradual loosening of social distancing measures.

 

6/26: The Fed ordered moves to preserve the capital of major U.S. banks, after its annual “stress tests” showed the group would collectively lose about $700 billion in a worst-case scenario.  Meanwhile, a lower final reading in the University of Michigan’s June consumer sentiment survey, a dip in personal income last month and the halting of reopening plans by some states kept bulls in check.

 

 

Heard on the Street:

“Overall we see the second-wave and U.S. election stories as contributing to market volatility as headlines feed investors’ hopes and fears about the speed and strength of the economic recovery. But it is the Fed story that will endure over the medium term.”

—  Mark Haefele, CIO of UBS as quoted by MarketWatch on 6/22/2020

 

“Bubbles are always an issue, and I do keep my eye on it, but I am just not seeing things that are on the same magnitude as what happened in the late 1990s, the so-called dot com bubble that blew up on us and then the much more serious housing bubble in the mid-2000s.”

— St. Louis Fed President James Bullard in a Bloomberg TV interview on 6/23/2020

 

“Although the Nasdaq hit a new high and has been on a spike, less than 50% of its constituents are trading above the 200-day moving average. That’s the biggest divergence since 2001… It’s hard to paint a rosy picture when that’s your classic story of the generals advancing and the soldiers falling behind. I think you add the virus stuff to more attention given to these technical divergences and sentiment being stretched and you have a recipe for a pullback.”

— Liz Ann Sonders, Charles Schwab chief investment strategist as quoted by CNBC on 6/24/2020

 

“I think the market is probably a little ahead of itself at this time, because I still believe we are witnessing real tragedies in the small and medium businesses… The most important question I ask everybody is: do you believe earnings are going to be in 2021 at least as good as in 2019? And only a fraction of business leaders believes their business will be as robust as in 2019. But the marketplace is not saying that.”

— Larry Fink, CEO of BlackRock as quoted by CNBC on 6/25/2020

 

 

Longer Game:

In a webinar sponsored by the CFA Institute, Prof. Elroy Dimson of Cambridge University provided a sobering outlook of diminished real returns of only 2% for a “typical” 60/40 (stocks/bonds) portfolio, based upon his analysis of investment returns in 23 different countries spanning 120 years through 2019.

 

Mohamed A. El-Erian, chief economic adviser at Allianz, lays out priorities for domestic policymakers in a world still “heavily influenced by US economic growth, financial stability, and policy spillovers.”

 

 

Bonus:

Contrary to the expectations of some, a Chicago Fed study finds that those currently collecting unemployment benefits search for work at least twice as intensely as those who have exhausted their benefits.

 

According to a Deloitte report, US oil independence has been dealt a major setback as the shale industry is expected to write down $300 billion in assets, due to “low commodity prices, reduced demand, capital constraints, debt loads, and health impacts of COVID-19.”

 

‘Cuz they say two thousand zero zero party over,
oops out of time
So tonight I’m gonna party like it’s 1999

— Prince

 

Recently, considerable ink has been spilled on the explosion of new accounts at major online brokers during 1Q when the US stock market tanked.  One can be forgiven for a nagging sense of “déjà-vu,” however superficially reminiscent of the heyday of the ’90s dot-com bubble. 

 

This heightened interest from mom-and-pop investors has engendered unequivocal consternation among some veterans.  Given the market performance since the March low, it is not difficult to imagine whether their warning were blissfully ignored.  Indeed, unprecedented fiscal/monetary support anchoring investor sentiment and momentum/trend investing appears to have overridden stock valuation concerns and economic worries, for now at least.

 

Setting aside the documented difficulty (here, here) of achieving sustainable success in short-term trading, I believe a disciplined examination of the following should be done before committing to investments of any duration:

 

• What is the purpose? (e.g., speculative trading vs. longer-term funding plans)
• Why is the investment appropriate?
• How can risks be mitigated? If not, what are the implications of downside risks?
• What are the entry/exit points? (The intuitive “buy low/sell high” adage is but one permutation.)

 

Investing has always involved divining the future, itself riddled with variables.  Whereas previously the impact of such unknowns could be estimated within a reasonable framework of analysis, the current environment provides no easy answers.  So, before accepting a “hot” investment tip at a party next time, just pass the nuts instead.

 

Top News:

6/15: The US stock benchmark indices reversed earlier losses after the Federal Reserve, acting as a backstop, said an existing stimulus program will now include purchases of individual corporate bonds.

 

6/16: A smattering of positive treatment headlines in the Covid-19 fight (here, here & here), coupled with a bigger than expected turnaround in May retail sales, cheered investors.

 

6/17: Spikes in new coronavirus cases in select states and China brought reopening concerns to the fore.

 

6/18: Decelerating trends notwithstanding, both new and continuing jobless claims remain at persistently high levels as 29 million Americans claim benefits in all programs. Separately, Conference Board’s Leading Economic Index for May registered the first uptick since January.

 

6/19: Optimism regarding re-opening efforts was tested again as a resurgence in new Covid-19 cases in some states prompted a warning from the WHO.

 

Heard on the Street:

“The levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.  Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely… We are committed to using our full range of tools to support the economy in this challenging time.”

—  Fed Chairman Jerome Powell in semiannual testimony to Congress on 6/16/2020

 

“At the Federal Reserve, I expect our current stance of highly accommodative monetary policy to continue until the economy has largely recovered what’s been lost due to the virus… But monetary policy can’t help the U.S. economy reach its full potential on its own. We also need fiscal policymakers to commit to sustained investments in our economic future… Now let me be clear: I’m not just advocating for increased public spending and debt. The composition of spending is crucial. We need to focus on investments that leverage the talent of everyone and contribute to the economy’s long-term growth prospects.”

— Mary Daly, San Francisco Fed President in remarks to National Press Club on 6/15/2020

 

Longer Game:

Taking stock of the nation’s preoccupation with domestic woes, Richard Haass, president of the Council on Foreign Relations, argues the US can ill-afford to ignore percolating and recurring geopolitical and environmental issues with global implications.

 

Stephen Roach, ex-chairman of Morgan Stanley Asia, predicts a 35% depreciation of the US dollar, owing to its shrinking share of global trade and importance as a reserve currency.

 

Bonus:

As of 6/11/2020, a Banc of America Global Fund Manager Survey of 211 institutional investors reveals 78% of respondents believe the stock market to be “overvalued,” while 53% say the comeback from the March lows is a “bear market rally.”

Top News:

6/08: Officially declaring an end to the longest economic expansion in U.S. history, the National Bureau of Economic Research said the country has entered a recession of unknown duration.

 

6/09: A May survey by the National Federation of Independent Business (NFIB) showed a rebound in optimism amongst small business owners.

 

6/10: On the heels of a muted Consumer Price Index report, the Fed voted to keep benchmark rates near zero, a dovish stance likely to be maintained through 2021.

 

6/11: Pace of both initial and continuing weekly jobless claims trended lower, even though 44 million Americans have filed for benefits since the pandemic’s onset.  Meanwhile, allaying some deflationary concerns, the Producer Price Index snapped three straight months of decline, as food and energy prices increased in May.

 

6/12: Governors of Oregon and Utah have paused their respective states’ phased reopening efforts as they investigate recent increases in new coronavirus cases.

 

Heard on the Street:

“Over any limited segment of the market cycle, it doesn’t really matter whether the beliefs of investors are well-informed or wildly misguided. It also doesn’t really matter, in the short-run, whether market valuations are consistent with strong positive long-term returns or with negative ones. In the short-run, what matters is whether investor psychology is inclined toward speculation or toward risk-aversion.”

— John Hussman of Hussman Investment Trust in a note, 6/08/2020

 

“As states begin to reopen, small businesses continue to navigate the economic landscape rocked by COVID-19 and new government policies. It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.”

— Bill Dunkelberg, chief economist at NFIB as quoted by MarketWatch, 6/09/2020

 

“Given the magnitude of the rally, it would shock me if we had a one day sell-off and that’s it.  The stocks that are up the most from the lows are still the risk-on, high beta, value, small-cap stocks. They’re still the big winners and I would suspect that there’s more pain to come near-term before the market clears out kind of this excessive speculation that we’ve seen recently.”

— Andrew Slimmon of Morgan Stanley Investment Management in a CNBC interview, 6/12/2020

 

Longer Game:

Lee Hsien-Long, the prime minister of Singapore, a tiny nation long accustomed to finessing geopolitics, believes whether Pax Americana can be sustained will rely upon how the US and China interact in a shifting global order.

 

Bonus:

While characterizing COVID-19 as “his worst nightmare,” Dr. Anthony Fauci still expects “more than one winner in the vaccine field, because we will need vaccines for the entire world—billions and billions of doses,” according to excerpts from the Biotechnology Innovation Organization’s virtual conference.  In the meantime, given there’s much scientists don’t know yet about immunity to COVID-19, concerns are rising over reports of new infections in select states.

 

OECD released its semiannual report, predicting worldwide economic contraction of at least 6% in 2020, and outlining two scenarios for recovery in 2021, depending on course of the pandemic. 

Rashomon, an allegory about the fungibility of truth, is a favorite in the oeuvre of filmmaking legend, Akira Kurosawa.  As the S&P 500 rallies to within 6% of its all-time high, even while almost 21 million American remain unemployed, it is easy to view this apparent disconnect as if one were re-watching the Japanese epic. 

 

Unabashed bulls would have us believe that the market is a perfect discounting mechanism, to which economist Paul Samuelson once famously quipped, “The stock market has predicted nine of the last five recessions.”

 

Beyond uncertainty relating to the economy, public health, trade relations, not to mention the election later this year, I suspect there are other distortions in the market, including: 1) the “Fed put,” namely the belief that the central bank will prop up asset prices, as implied by its recent action; and, 2) investor psychology in the form of FOMO, which some might term “greed.”

 

Regardless of your positioning in the market, it bears remembering investors tend to overshoot both on the downside and the upside, as recent developments have reminded us yet again.  Complacency cannot be a luxury, especially now.

 

Top News:

6/01: While marking the third straight reading below 50.0%, indicating contraction, ISM’s Manufacturing Index climbed to 43.1% from an 11-year low of 41.5% in April

 

6/02: In an interview with JAMA, Dr. Anthony Fauci, who’s been hopeful of a vaccine by year-end, cautioned against excessive optimism on its “durability.”

 

6/03: Shrugging off continuing social strife, investors sustained the recent upward bias in US equities as service sector data bolstered hope that economic damage may be mostly done, for now.

 

6/04: Ahead of tomorrow’s jobs report, worse than expected continuing weekly unemployment claims suggest the pace of rehiring may not be as robust amidst a patchwork of reopening plans at local levels.

 

6/05: Defying market expectations by a wide margin, May’s payrolls report showed a surprising recovery of 2.5 million jobs, notably in the leisure and hospitality sector. 

 

 

Heard on the Street:

“Everyone can see and feel that this is different and can sense the bizarre nature of the market response: we are in the top 10% of historical price earnings ratio for the S&P on prior earnings and simultaneously are in the worst 10% of economic situations, arguably even the worst 1% … There are no certainties but there are probably still some better and safer themes. Caution and patience are likely to be two of them.”

— Jeremy Grantham, co-founder of GMO, as excerpted from the firm’s quarterly review

 

Bonus:

A May survey, albeit of limited sampling size, shows global CFOs are less than sanguine on 2020 business prospects.