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Everything Is Wrong In The World. Except For Stocks. The Stocks Seem Fine.

74% say America is on the wrong track. But the stocks are fine. Thanks for asking.

Pretty much every, single headline out of the US on Tuesday was some combination of disconcerting and foreboding.

For example, a new national Monmouth University Poll conducted in the midst of the nationwide protests, shows just 21% believe the country is headed in the right direction. 74% said America is on the wrong track.

For those curious, Monmouth notes this result is “more negative than it has been in polling going back to 2013”. The measure stood at 33% to 60% in May and hit 39% to 54% in March.

Despite managing to pass massive virus relief legislation, Congress is still seen as an institution worthy of public derision. “The overall job rating for Congress stands at 22% approve and 69% disapprove”, the results read. Monmouth adds that this represents “a notable drop from the legislative branch’s already negative ratings in recent polling… and marks a return to its pre-COVID standing”.

Findings from the poll as it relates to the protests show 54% of Americans believe the actions of protestors, including the burning of a police precinct, are either fully or partially justified (17% said fully, 37% said partially). 78% of the American public said the anger that gave rise to the protests is either fully (57%) or partially (21%) justified.

Meanwhile, shares of Sturm Ruger and Smith & Wesson rose handily for a third session on Tuesday. Background checks have jumped in recent months, including May’s 75% year-on-year surge, which came hot on the heels of 69% and 80% increases in April and March, respectively.

Lake Street analyst Mark Smith cited “unfilled demand from COVID-19, recent buying due to civil unrest and continued and perhaps heightened buying due to the upcoming election and potential for increased regulation”, in explaining the apparently frantic bid for firearms.

It will be interesting (to say the least) to observe the rhetoric from gun enthusiasts in the event the White House continues to push for the militarization of US cities. For now, you can probably assume increased background checks are attributable to Americans seeking protection for themselves and their property, but if there’s anything Trump voters despise more than CNN and Hillary Clinton, it’s the prospect of living under some form of martial law.

Speaking of that, William Barr “personally ordered law enforcement officials on the ground to extend the perimeter around Lafayette Square to push back protesters just before Trump spoke Monday”, The Washington Post reported, citing a Justice Department official. The effort to “extend the perimeter” involved firing tear gas and rubber bullets at peaceful protesters, something decried by Democrats and some Republicans on Tuesday.

“There is no right to riot, no right to destroy others’ property, and no right to throw rocks at police. But there is a fundamental – a Constitutional – right to protest, and I’m against clearing out a peaceful protest for a photo op that treats the Word of God as a political prop”, GOP senator Ben Sasse seethed, in a scathing statement referencing the president’s Monday evening stroll to St. John’s Church.

The Catholic archbishop of Washington called Trump’s visit “reprehensible”. “I find it baffling and reprehensible that any Catholic facility would allow itself to be so egregiously misused and manipulated in a fashion that violates our religious principles”, Archbishop Wilton Gregory declared, in a statement of his own.

The bishop of the Episcopal Diocese of Washington, Mariann Budde, said the church (which she oversees) in “no way” supports Trump’s “incendiary response to a wounded, grieving nation”. “We are followers of Jesus”, she chided. “We stand with those seeking justice for the death of George Floyd”.

You get the point. I don’t think there’s much utility in citing more quotables referencing what happened on Monday evening, although there’s certainly no shortage.

As dark as the day was for America, it was another good day for equities.

In fact, the S&P is back above its 200-day moving average, and is now perched at the highest since March 4. Small-caps are gunning for a third straight week of outperformance against the Nasdaq 100, as the market’s pro-cyclical bent persists.

This is being helped along by a weaker dollar, which dropped again Tuesday (more here), and that, in turn, gave crude an extra impetus as OPEC+ ponders the extension of production curbs.

WTI is now back to levels last seen on March 6, the day before the Saudis fired the opening shot in a short-lived price war with Russia, setting the stage for what ultimately morphed into oil’s surreal push into negative territory, as demand collapsed and storage filled up during the virus lockdowns.

This is something of a tragicomedy, though. The further above $30 we go, the more supply will come back online, which will cap prices. “[It’s] a question of how much price gains do you really want with the risk of the return of US shale?”, Petromatrix managing director Olivier Jakob remarked.

At the end of the day, one is left ponder a world where everything seems to be going wrong except for equity prices, which I suppose makes 2020 not that much different from the juxtaposition seen throughout the post-financial crisis years.

That said, you’d be remiss not to cast a wary eye at the tinderbox which is America in 2020.

While it’s easy to point to central bank largesse and historical analogs of yesteryear’s social unrest in the course of arguing that none of this matters for asset prices, that position will seem extraordinarily naive in the event something else goes wrong.


 

3 comments on “Everything Is Wrong In The World. Except For Stocks. The Stocks Seem Fine.

  1. Futures point to further gains on Wednesday, looks like markets will continue grinding higher until we get some good news…

  2. Jesse says:

    I find it interesting that I’m still desperately trying to understand what the stock market is ‘saying’ and apply its logic to the world around me, when a more thoughtful individual would have long since given this up as a lost cause. Is it even plausible to assert that the US market somehow embodies a dynamic outlook for the economy or that it serves as real-time, aggregate DCF for its constituent parts? As it stands the S and P is , in effect, a closed, self-referential system, with the Fed arguably within its boundaries.

    If I can just hold on to that reductionist thought, I’ll stop sending myself mad trying to rationalise why it would think there’s a V-shaped recovery around the corner. Or why Trump’s re-election would be good for the economy.

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