We are not even a third of the way through the year and 2020 is already one for the history books.
My last post came on the heels of the biggest rally for the stock market since the Great Depression. Which of course brings back comparisons to that era. I see many talking up the coming Depression. Is this Virus leaving in its wake the recipe for the next Great Depression? Is it going to be an even Greater Depression?
I find it ironic that impact of this Virus economically is far worse than anything those long term bears could have dreamed up. When those bears were calling for a market crash from 2010 until early 2020, what do you think their price targets would be had they seen this coming?
Oh yeah thats right.. they did see this coming. Just like at the start of every baseball season I see the Mets Winning the World Series... There is a chance right?
Had the bears been told that in 2020 the entire world would be shut down from a Pandemic they'd have upped their 60% crash calls to 90%... right?
And yet here we are, the most dire economic scenario ever.... and the Nasdaq is down less than 10% for the year.
- Nasdaq Composite -7.9% YTD
- S&P 500 -15.3% YTD
- Dow Jones Industrial Average -19.3% YTD
- Russell 2000 -29.0% YTD
They waited 10 years for this? Could you imagine? Enduring the most EPIC bull market of our lifetimes to get a 7.9% decline? Its laughable really!
How the heck isn't the S&P500 down 50% for the year? Oil is trading NEGATIVE! The world has GONE insane. ... Nasdaq down 7% on the year. I'm laughing just writing this. How many bearish articles were penned about the pending doom for the financial markets...e very year since 2009 and here we are about as financial doom as it gets and the Nasdaq isnt even down 10%.
Of course we know why. And I said it many many moons ago. How wild it would be that the next recession triggers higher stock prices. How crazy did that sound at the time.
From Over three years ago --->>
"As long as Central Banks around the globe continue to support risk assets, we are going to see big candles and unexplained moves to the upside."
And while we may be a year closer to the next financial crisis, that next crisis may be in 2018 or even 2028. And what if that next Crisis is met with even more Central Bank action. So much so that the next recession sends stocks higher not lower. Wow! That is about as crazy as saying every single year for the last nine years that the market is going to crash....."
And there ya have it. Yeah the easy answer. But its been true all along. The Central banks. And look this time around they didnt waste any time. The Great Recession took many many months for the FED to act.
And its not just the FED. The government has approved trillions of stimulus. More money is being thrown at this than anyone ever thought possible.
See if this was just your average recession... the FED would have been slow to act. The government wouldn't be doling out trillions of $$$$.
This Virus was a signed permission slip to do everything and anything to keep asset prices aloft.
And the price action is telling you that.
So what next?
Was this Virus the spark that will light a massive decline for the stock market?
Are we just going to V bottom and be done?
Are we hitting new record highs this year?
I really don't know the answers to all those questions. What I do know is that out of this Virus will come a new normal.
My short to medium outlook, I think the $SPY could see $290 and even $310. Later this year, maybe even new record highs.
What fuels the rally? I think we are slowly and then quickly going to see that long awaited inflation. And yes I know, the looming bankruptcies and vanishing of debt is not exactly inflationary.
However the supply shock we are going to see on the other side of this I think will create a demand > supply issue. Maybe I'm wrong. But also think the massive response to this Virus is trillions upon trillions of $$$.
All I hear is more money more money more money. States, governments, municipalities are all going to have to get bailed out in some form. Mo money mo money mo money.
The Pandora's box has been opened. The bailouts have begun. And they are not going to stop.
I think this could all fuel a short to medium run higher for the market. However longer term the risks are there for all this massive stimulus and debt to cause a crisis even bigger than this one.
What is going to trigger the move lower for the market down the road.
Anyone remember the summer of 2011? The U.S. debt downgrade. I think we are headed for another one of those. You can borrow all the money in the world at low interest rates... until you can't.
And the same holds true with corporate debt as sovereign debt. It's great the FED is going to backstop junk bonds... but who is going to back stop the FED.
What if that long awaited inflation returns? What if... interest rates rise despite the unlimited QE of the FED?
I'm just thinking out loud.
Short term I think momentum is pointing to upside. I think this rally could push the $SPY to $292 and then even $310.
From a chart perspective longer term.... does this megaphone pattern imply that yes.... the top is in?
Right now its clearly a tug of war for the markets. Unprecedented stimulus and Central bank action vs. a new reality.
It doesn't help that we came into 2020 with record corporate debt. Again as long as that debt is serviceable.
However even zero percent interest rate loans are tough to pay back when you have no revenue coming in.
Everything will look a lot clearer down the road. The dust is still settling. My long term bullish view of the stock market is getting challenged. However right now I think it's clear the markets are being fueled by a massive and unprecedented response.. a shock to the system.