Happy Days are here again?
All those millions who dumped stocks following the lockdowns of economies around the world are counting their losses following a remarkable reversal that has pushed the S&P 500 up 34 percent from its 23 March low.
President Trump tweeted today: “Stock Market up BIG, DOW crosses 25,000. S&P 500 over 3000. States should open up ASAP. The Transition to Greatness has started, ahead of schedule. There will be ups and downs, but next year will be one of the best ever!”
Today, the Dow rallied up over 500 points on cheers that the economy was reopening.
Why have the markets spiked recently? Two Wall Street reasons:
- Countries are starting to reopen their economies.
- Hopes of a COVID-Killer vaccine.
On the oil front, although down some 40 percent from their January high, prices moved slightly higher today as lockdowns ease and fuel demand increases, and producers continue to cut production so supply does not dramatically outstrip demand. Brent Crude closed at $36.10 and West Texas Intermediate moved up 2.77 percent to close at $34.17.
The safe haven asset, gold, fell $27 today, closing at $1,708 on the vaccine news and that sales of new U.S. single-family homes rose by 0.6 percent in April, rather than post a decline as most market analysts projected.
Bitcoin, the alternative safe haven non-currency, slipped from its recent high 9,000 range back to 8,835.
TRENDPOST: The stock market’s strength last week – its best week since 9 April – flies in the face of market fundamentals. Germany, Japan, and Mexico, among other countries, are in recession; the U.S. is in recession also, although the formal figures showing it have not been released yet.
The piece-by-piece reopening of economies with social distancing, mask wearing, plastic shields, and capacity limitations will not generate strong economic growth.
The current bull market, like the years-long one preceding it, lived off the artificially-cheap money the Fed keeps handing out to addicts, so the rich can be guaranteed their profits while the rest of us watch our jobs disappear and our debts pile up.
The facts are undeniable. Federal Reserve Chairman Jerome Powell made it perfectly clear that the central bank would infuse the equity markets with all the cash and schemes undreamed of to keep the markets rising.
Beyond buying Treasury bonds, corporate bonds, including junk bonds, credit card and student loan debt, municipal debt, and trillions into repo markets for trading houses to gamble, Powell said, “Well, there’s a lot more we can do. I will say that we’re not out of ammunition by a long shot. No, there’s really no limit to what we can do with these lending programs that we have. So there’s a lot more we can do to support the economy, and we’re committed to doing everything we can as long as we need to.”
Thus, forecasting the rise and fall of equity markets based on economic fundamentals, corporate earnings, price earnings ratios, etc. is imprecise considering that, by the facts, the Fed is rigging the markets.
Furthermore, the Fed is not supporting the “economy.” Their monetary methadone is being injected into Wall Street, not Main Street.
TREND FORECAST: Helping to push equities higher today on the news of the vaccine were major casino and airline stocks, which shot up some 10 percent on average.
Considering the multitude of “New ABnormal” flying conditions, social gathering constraints, crowd size restrictions, testing requirements, and ingrained fear throughout society, we forecast these sectors will not bounce back to pre-COVID-19 revenue and earnings levels.
TREND FORECAST: Gold is holding above $1,700 because gold investors know that the stock market is a rigged gambler’s game, disconnected from the reality of economic fundamentals.
The trillions lost, the hundreds of millions out of work, and the millions of businesses that will go out of business as a result of the global lockdown is manpower and money that is lost.
Even if the “new normal” would return to the “old normal,” the socioeconomic and geopolitical damage inflicted by the lockdowns will, at best, temporarily forestall the “Greatest Depression.”
Our forecast remains that gold must hold steady above the $1,740 mark for at least two weeks for it the spike to $2,000 and above… which, to date, it has not be able to maintain.
TREND FORECAST: Oil prices will not rise to pre-pandemic levels this year but will stay below $50 as the global economy gradually reopens and assesses the damage the lockdown has done and the prospects for a return to growth.
Hint: with unemployment nearing 25 percent and almost half of small businesses no expecting to reopen, any recovery is likely to take years, barring dramatic surprises – such as politicians taking us into a new war to justify government spending programs and turn attention away from policy failures.
Oil prices dipped slightly last week after China announced that, for the first time, it will not announce an annual economic growth target. Prices, however, largely held recent gains as the global economy shows signs of stirring back to life, even if a thinner, slower life than before the pandemic.