Insights

 

‘Cuz they say two thousand zero zero party over,
oops out of time
So tonight I’m gonna party like it’s 1999

— Prince

 

Recently, considerable ink has been spilled on the explosion of new accounts at major online brokers during 1Q when the US stock market tanked.  One can be forgiven for a nagging sense of “déjà-vu,” however superficially reminiscent of the heyday of the ’90s dot-com bubble. 

 

This heightened interest from mom-and-pop investors has engendered unequivocal consternation among some veterans.  Given the market performance since the March low, it is not difficult to imagine whether their warning were blissfully ignored.  Indeed, unprecedented fiscal/monetary support anchoring investor sentiment and momentum/trend investing appears to have overridden stock valuation concerns and economic worries, for now at least.

 

Setting aside the documented difficulty (here, here) of achieving sustainable success in short-term trading, I believe a disciplined examination of the following should be done before committing to investments of any duration:

 

• What is the purpose? (e.g., speculative trading vs. longer-term funding plans)
• Why is the investment appropriate?
• How can risks be mitigated? If not, what are the implications of downside risks?
• What are the entry/exit points? (The intuitive “buy low/sell high” adage is but one permutation.)

 

Investing has always involved divining the future, itself riddled with variables.  Whereas previously the impact of such unknowns could be estimated within a reasonable framework of analysis, the current environment provides no easy answers.  So, before accepting a “hot” investment tip at a party next time, just pass the nuts instead.

 

Top News:

6/15: The US stock benchmark indices reversed earlier losses after the Federal Reserve, acting as a backstop, said an existing stimulus program will now include purchases of individual corporate bonds.

 

6/16: A smattering of positive treatment headlines in the Covid-19 fight (here, here & here), coupled with a bigger than expected turnaround in May retail sales, cheered investors.

 

6/17: Spikes in new coronavirus cases in select states and China brought reopening concerns to the fore.

 

6/18: Decelerating trends notwithstanding, both new and continuing jobless claims remain at persistently high levels as 29 million Americans claim benefits in all programs. Separately, Conference Board’s Leading Economic Index for May registered the first uptick since January.

 

6/19: Optimism regarding re-opening efforts was tested again as a resurgence in new Covid-19 cases in some states prompted a warning from the WHO.

 

Heard on the Street:

“The levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery.  Much of that economic uncertainty comes from uncertainty about the path of the disease and the effects of measures to contain it. Until the public is confident that the disease is contained, a full recovery is unlikely… We are committed to using our full range of tools to support the economy in this challenging time.”

—  Fed Chairman Jerome Powell in semiannual testimony to Congress on 6/16/2020

 

“At the Federal Reserve, I expect our current stance of highly accommodative monetary policy to continue until the economy has largely recovered what’s been lost due to the virus… But monetary policy can’t help the U.S. economy reach its full potential on its own. We also need fiscal policymakers to commit to sustained investments in our economic future… Now let me be clear: I’m not just advocating for increased public spending and debt. The composition of spending is crucial. We need to focus on investments that leverage the talent of everyone and contribute to the economy’s long-term growth prospects.”

— Mary Daly, San Francisco Fed President in remarks to National Press Club on 6/15/2020

 

Longer Game:

Taking stock of the nation’s preoccupation with domestic woes, Richard Haass, president of the Council on Foreign Relations, argues the US can ill-afford to ignore percolating and recurring geopolitical and environmental issues with global implications.

 

Stephen Roach, ex-chairman of Morgan Stanley Asia, predicts a 35% depreciation of the US dollar, owing to its shrinking share of global trade and importance as a reserve currency.

 

Bonus:

As of 6/11/2020, a Banc of America Global Fund Manager Survey of 211 institutional investors reveals 78% of respondents believe the stock market to be “overvalued,” while 53% say the comeback from the March lows is a “bear market rally.”