Short-term factors came back to the fore the past few days as rising Covid cases and an increasing likelihood of stimulus measures being pushed back wreaked havoc on markets worldwide. Major European indexes were down over 2%+ yesterday, led by Germany dropping 2.5%. China was able to hold it together after announcing even further stimulus measures, declining only 0.5%. Domestically, stocks opened down hard but recovered throughout most of the day to close fractionally lower, outside of the Nasdaq which lost 0.5%. Beaten up cyclical sectors led the rebound as Energy and Industrial stocks were mostly higher. The Dow Jones ended the day down only 20 points but marked its 3rd negative close in a row. We haven’t seen this Index decline four days in a row since February.
After a 15%+ drop in September, FANGMAN stocks raced back towards their old highs this week before succumbing to pressure again. In the very near term, it looks like they are setting lower highs. That is not bullish action. A successful retest of September lows could be encouraging. Another attempt at new highs will come in time though, but it is clear a lot of good news has been priced in for the tech leaders.
Apple had their iPhone update this week, which historically precedes a top in the stock as good news gets priced in. The stock rose 17% over the past month, tacking on nearly $300B in market value. For comparison’s sake, that’s equal to 3 Colgate’s, 6 Dollar Generals or 10 Best Buys! A pause here would not be unexpected for many of the big winners, as Covid and stimulus concerns create a nearsighted damper even with longer-term positives.
We are all well aware of the ineptitude of elected officials working together to find common ground during an election cycle. It was easy to print money and send checks to Americans and business owners during the depths of the Covid-induced recession back in April. Now that we’re a few weeks away from voting, no one wants to give the other side a win.
The loser becomes those unemployed and deeply affected by the shutdown. Deficit hawks are now worried about printing too much money. Liberals want to give cash to everyone. Higher level officials don’t want to do anything that will impact tight races this close to November 3rd. There is pressure from both sides of the aisle to get things done, but the longer it takes, the more uncertainty creeps in. Investors hate uncertainty. Short-term volatility is just that. Eventually, this will get settled. Printing presses are ready to be turned back on.
A bigger concern today for stocks is likely coming from the uptick in global, or more specifically, European Covid cases. What was once considered a great job relative to the U.S., Europe is currently seeing pockets of rapid spreading. In round numbers, Europe has twice the population of the U.S. but is only testing half as many citizens per day. They are reporting more than twice as many new daily cases of the coronavirus. Europe is in the danger zone with increasing cases not slowing down yet. Clearly, they need more testing capabilities at a minimum. We all have more work to do to improve accuracy and safety measures.
More testing today relative to April obviously leads to higher positives, but the trend is concerning. Germany is seeing daily new cases higher than any period back to the April peak, leading to more lockdown restrictions in Berlin. In June they were under 300 cases, today it is back over 7,000. The UK announced further constricting policies on their citizens as the case count is four times what occurred in April. France, whose population is only 67 million, is reporting over 30,000 cases a day as well. Partial lockdown plans are being implemented again. Reports of hospitals being overwhelmed in France caused them to issue a health state of emergency. The trend here is not encouraging for reopening the global economy.
We’re barely into the Fall season. A full-on second wave, worse than last April, would be a death knell to several industries and small businesses. Recent vaccine trials halted due to safety or quality concerns adds fuels to the fire. If the rest of the world is behind the U.S. from a safety, testing and quality standpoint, then more selling will come. Fingers crossed that this gets under control quickly.
The long-term story does not change much though. Low rates are here to stay and are working their way through the system. Our Government will eventually work together and get another stimulus bill approved. More money will go to those in need. Some will probably go to those that don’t need it too. Consumer balance sheets are in great shape today. Consumer net worth is actually making new highs, six months after a worldwide shutdown. Cash balances and savings rates are near record highs. That money will get spent eventually. It is fuel for the upcoming bounce back in economic activity. This money doesn’t care who wins the Presidency or a Senate seat.
Applications for opening new businesses are at record highs in the U.S. The American dream is alive and strong. China’s economy is already back to full throttle and they’re a few months ahead of the curve from a pandemic standpoint. Home prices and construction starts are well above pre-Covid levels. Unemployment keeps trickling down quicker than many expected. A V-shaped recovery is well underway in autos and many other sectors.
A bullish structure is there. We know a lot more about the disease. More testing allows us to get to patients quicker. Every drug works better if it is taken early on. Covid treatment options keep improving. The data analysis and scientific research will yield a few vaccines. There will be near-term setbacks, but 9 – 12 months from now our lifestyle should look more like 2019 than the 2020 lockdowns. There is hope, even if the next few weeks and months look a little chaotic.
Phillies star Bryce Harper turns 28 today. Murder, She Wrote actress Angela Lansbury is now 95.
James Vogt, 610-260-2214