What The Markets Are Telling Us About The Economy

What The Markets Are Telling Us About The Economy

With the major indexes looking strong, one would think that the economic recovery is robust. Not so fast.

Even though the S&P 500, Dow, and especially the Nasdaq are up sharply from their lows, a closer look reveals that a very fragmented recovery is underway. One, in fact, is telling us that the economic rebound may be slower than anticipated.

Even though the Nasdaq is only down 1.18% for 2020, the majority of stocks are still way down. Just look at the broader Russell 2000 index which is still down 25.64% for the year.

Twenty four percent of the stock market’s gain has been concentrated in just 6 mega-cap stocks. Truly a tale of two markets.

For the most part, the “work from home” (WFH) trade has been working the best. Those are the antisocial type stocks such as healthcare, technology, and online retail.

When the economy starts to look fundamentally strong, the two areas we will see strengthen are financial stocks and weakness in U.S. Treasuries as yields are rising.

The wild card, ringer, or Trump card (some pun intended) continues to be the Federal Reserve’s “do whatever is necessary at all cost” policy. The stimulus they have dumped on the economy in just 60 days is more than they mustered during the last crises in over 4 years….with more promised! You just don’t fight that.  

When the guys printing the money are telling you they are going to print more money, you listen. Of course, we are flooded with conspiracy theories and well laid out justifications on why fiscal stimulus won’t work because this time is different. Blah, blah blah, to me, that’s ignorance or blasphemy….but in a good way. Financial markets do best with lots of naysayers. The time to get negative is when they turn positive.  

I suspect this Genesis Bull Market to continue for the foreseeable future. I mentioned last week that I expected a “post-earnings nap” correction, but warned that: 

  • it may be very brief and shallow, not being enough to allow the people on the sidelines to get in”.

Guess what? We got one. From May 7-12, the Dow was down 6.4%. That’s a very healthy correction in any market. Most people didn’t even notice and very little of the money on the sidelines was able to get invested. Maybe that’s all we’ll get.

For now, I remain positive but always vigilant. Rest assured, if things change we are prepared to act quickly and decisively.

 

“Invest for need, not for greed!”

Cheers -Keith

916-925-8900

Smart Money Newsletter

Written By: Keith Springer

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