Insights

Rashomon, an allegory about the fungibility of truth, is a favorite in the oeuvre of filmmaking legend, Akira Kurosawa.  As the S&P 500 rallies to within 6% of its all-time high, even while almost 21 million American remain unemployed, it is easy to view this apparent disconnect as if one were re-watching the Japanese epic. 

 

Unabashed bulls would have us believe that the market is a perfect discounting mechanism, to which economist Paul Samuelson once famously quipped, “The stock market has predicted nine of the last five recessions.”

 

Beyond uncertainty relating to the economy, public health, trade relations, not to mention the election later this year, I suspect there are other distortions in the market, including: 1) the “Fed put,” namely the belief that the central bank will prop up asset prices, as implied by its recent action; and, 2) investor psychology in the form of FOMO, which some might term “greed.”

 

Regardless of your positioning in the market, it bears remembering investors tend to overshoot both on the downside and the upside, as recent developments have reminded us yet again.  Complacency cannot be a luxury, especially now.

 

Top News:

6/01: While marking the third straight reading below 50.0%, indicating contraction, ISM’s Manufacturing Index climbed to 43.1% from an 11-year low of 41.5% in April

 

6/02: In an interview with JAMA, Dr. Anthony Fauci, who’s been hopeful of a vaccine by year-end, cautioned against excessive optimism on its “durability.”

 

6/03: Shrugging off continuing social strife, investors sustained the recent upward bias in US equities as service sector data bolstered hope that economic damage may be mostly done, for now.

 

6/04: Ahead of tomorrow’s jobs report, worse than expected continuing weekly unemployment claims suggest the pace of rehiring may not be as robust amidst a patchwork of reopening plans at local levels.

 

6/05: Defying market expectations by a wide margin, May’s payrolls report showed a surprising recovery of 2.5 million jobs, notably in the leisure and hospitality sector. 

 

 

Heard on the Street:

“Everyone can see and feel that this is different and can sense the bizarre nature of the market response: we are in the top 10% of historical price earnings ratio for the S&P on prior earnings and simultaneously are in the worst 10% of economic situations, arguably even the worst 1% … There are no certainties but there are probably still some better and safer themes. Caution and patience are likely to be two of them.”

— Jeremy Grantham, co-founder of GMO, as excerpted from the firm’s quarterly review

 

Bonus:

A May survey, albeit of limited sampling size, shows global CFOs are less than sanguine on 2020 business prospects.