Markets stocks

To Hell And Back Again (And Why September Doesn’t Presage A ‘Big Bear Move’)

It’s been a wild year.

How’s that for an understatement? Consider that nine months later, the world barely remembers that 2020 began with an assassination that, for a few days anyway, looked poised to be a Gavrilo Princip / Franz Ferdinand moment. That is now but a footnote.

In the latest edition of his popular weekly “Flow Show” series, BofA’s Michael Hartnett recounts “extreme moves” for “extreme times”:

COVID-19 deaths ≈ 1mn, stock market crash $30tn, cash on sidelines $5tn, global GDP loss $10tn, US unemployment claims up 50mn, monetary & fiscal stimulus $21tn, central bank asset purchases $1.5bn per hour, stock market rally $30tn, “super-V” recovery in GDP & EPS.

“To hell and back again” is an apt description. The following visual from Hartnett gives you some context.

So, where to now? After all this sound and fury ultimately signifying very little if all you were going by was the YTD gain/loss on the S&P, we find ourselves at something of a crossroads, where one path seemingly leads to even more existential tumult.

For markets, September hasn’t exactly been kind. Hartnett calls it a “midlife crisis”, noting that the intraday high-to-low since September 2 is -13% for the Nasdaq, nearly -11% for the S&P, more than -7% for global equities, +54 bps for junk spreads, and +2.6% for the dollar.

While this is “part of the ‘topping process'”, Hartnett doesn’t see a “big bear move” as particularly likely now — not “when the Fed is so easy, Wall Street is flush with cash, [and] vaccine expectations are strong”.

The upside scenario takes the S&P back into 3,300-3,600 range, Hartnett goes on to write, citing the possibility that another stimulus package gets done. He also mentions what could well be “strong Q3 tech earnings”.

However, the downside risk would come from a credit breakdown. Hartnett observes that while risk assets have stumbled, this “decent correction” hasn’t spilled over into investment grade credit yet — that’s the “belly-of-the-beast”, he notes.

One possible catalyst for things to take a material turn for the worse would be a rise in virus deaths.

So far, that’s not happening. And we should all be grateful for that.

Still, as discussed here, renewed containment protocols in Europe presage more pain for the services sector. If that’s replicated stateside, it could be problematic for the recovery.

As for stimulus hopes, they remain just that for right now — “hopes”.


3 comments on “To Hell And Back Again (And Why September Doesn’t Presage A ‘Big Bear Move’)

  1. joesailboat says:

    The U.S. populations hardest hit in the spring with death/shutdowns opened for the summer season. Big plus. These are areas of significant GDP. There is no observable National strategy going forward, therefor no predictive mitigation other than a universal mask policy. Current U.S.A. policies will have us back to April daily deaths by January,3000 deaths daily. A mask policy now 1167 daily. Which is more costly? A casual observer would have to assume that an extra 100,000 dead by January 1 is in the Republics best interest.
    Mask now means 275,062 or we have 371,062 January 1 current practice. In the spring the untimely deaths clogged and confused many systems of society.
    The attitude must be that we have become better at processing these deaths systemically or we will encounter more systemic breakdowns due to virus.
    Crawling over dead bodies was not something that I thought would be a normalized part of American life.
    Not Greatness.

    • runamok says:

      The halcyon days are over.

      The 2010s were the years of stepping over junkies and the deranged. The 2020s is shaping up to be the decade of stepping over bodies. The CDC publishes some relatively easy to comprehend charts to see what the excess deaths have been. They don’t publish forecasts of future, excess mortality that I’m familiar with; but, it’s reasonable that the social and economic conditions in the U.S. will take a toll that will fall into the CDC’ “excess” category.

      The elites see many of us as surplus labor. This decade will be a chance to permanently remove from the labor pool, through more homelessness, and worse, death, some of this surplus. They have no empathy for us.

  2. I assume by elites you mean Trump and Mitch McConnell’s Republican Senators who vowed to stop any further aid to the millions who are suffering.

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