Where’s The Floor?
US equities ended the week with a whimper, falling sharply, but Friday's hangover from a massive three-day surge still left the S&P with a weekly gain of 10%, the best since 2009.
And yet, traders and investors are left with far more questions than answers as they brace for a weekend of dire news around the global public health crisis and look warily ahead to next week, when a raft of key data in the US will likely reflect the hit from shelter-in-place orders and other containment measures
Here’s a thought:. The one thing that grew faster than the stock market last week, was the virus! All the analysts, politicians and bloggers can spin this as an exciting opportunity, but I bet my ability to post here, that The Trump’s won’t be rolling eggs on the White House lawn during Easter week, with a big crowd of maga morons. Furthermore, as the contagion explodes in the next few weeks, we’ll all get to see how ineffective 2 trillion is, in the war against Mr Virus.
The Floor is Zero. I mean we probably won’t hit the floor but I expect free fall to resume shortly.
SP500 price roughly at 12/2018 levels. Compare current situation to then – no comparison. No reason to consider 12/2018 as support.
SP500 valuation well above 2008/09 lows. Compare current situation to then – arguably infinite Fed/govt $ preclude breakdown of financial system (how sure are you of that?) but the virus/shutdowns are multiple times more economically damaging than the RE bust. Maybe 2008/09 is support but that’s still a long way down, and maybe it’s not support.
That said, I did buy a little on Monday, still <10% invested.
If a fast recovery from the projected lows is likely, it seems useless to own much or any Bonds right now, because equities will be a much better deal.
Sure, no reason to own anything but cruise lines and hotel stocks in that scenario.
“The fall in 5y5y swaps is largely a reflection of the collapse in oil prices, but there is more than a supply shock going on in Europe. So, the deflation risk is rising fast,” TS Lombard economist Davide Oneglia told the Reuters Global Markets Forum.
There’s no price level that serves as either a floor or ceiling. It is a date, a pivot: that time that the market psychology shifts from more pessimism from optimism, or vice versa. The bear market of 2007-2009 rolled over after October 2007, when the bulk of money managers, commercial and retail investors realized that the landscaped was changing for the worse, with the housing bubble recently popped and loan defaults increasing. The bottom was not defined by a certain price level. It was the realization that in March 2009 the uncertainty of bad news became less uncertain, and the investors became net buyers.
The uncertainty of the future from this crisis is off-the-charts. Even if the medical crisis has a time limit, the financial repercussions seem boundless, from a recovery at the end of the year to many years of turmoil. So, first the virus must be contained, or at least societies ability to function even with it. Then, the monster debts, bankruptcies, lost employment opportunities, wreckage of international trade, deflation, negative wealth effects, will be the discussion topics for many quarters, or years, afterwards.
I’m a bargain hound, feeling that cash is King, but here’s the deal: if Trump, Treasury & Fed through all their ammo at pumping up stocks, we’ll get a Yuge spectrum of equities that’ll end up with Yuge p/e’s and thus super dooper microscopic earnings yields and no future earnings. Hence. Yes. Mr Pee Pee Tapes can try to buy the election with your tax dollars, but there is a Yuge cost you’ll pay later. Thus, why explode a bubble now, during the crisis, versus calming down and focusing on the real crisis. That said, more people are likely to buy bargains as a bottom takes place, rather than a Yuge panic to buy inflated shares that have limited future growth. Amen
Lava, the floor is lava.
No, seriously, it should be about 1900-2000 on the S&P, give or take. But only if this doesn’t turn into an EM sovereign default/currency crisis.
The way into the Labyrinth it appears is going to prove out have been a whole lot easier than the way out…When the exit appears at the end of this tunnel the world outside will appear different.. This is an argument for keeping the solutions to common sense problems a simple as possible…Not part of human nature unfortunately….
How many trillions in bonds is the Fed buying? I’ve lost track.
What happens if the Fed starts buying stocks? or equity ETFs? Through a SPV I imagine?