Economic Outlook

Technically Speaking: Bulls & Bears Square Off At The Line

Bulls & Bears Clash At The Line

On Monday, the bulls and bears fought over the 200-dma. It seemed at the open as if the bears were close to taking control of the market. However, the tide quickly turned. With markets plunging again at the open, and with Jerome Powell’s personal fortune on the line at Blackrock, the Fed took quick action:

Here is the aptly timed press release putting causing bulls to “rush back in:”

The Federal Reserve Board on Monday announced updates to the Secondary Market Corporate Credit Facility (SMCCF), which will begin buying a broad and diversified portfolio of corporate bonds to support market liquidity and credit availability for large employers.

As detailed in a revised term sheet and updated FAQs, the SMCCF will purchase corporate bonds to create a corporate bond portfolio based on a broad, diversified market index of U.S. corporate bonds. This index is made up of all the bonds in the secondary market that U.S. companies have issued to satisfy the facility’s minimum rating, maximum maturity, and other criteria. This indexing approach will complement the facility’s current purchases of exchange-traded funds.

The Primary Market and Secondary Market Corporate Credit Facilities were established with the Treasury Secretary’s approval and $75 billion in equity provided by the Treasury Department from the CARES Act.”

The Fed’s announcement was unnecessary as it only repeated the original mission of the SMCCF. The made made no changes to the program, but with prices off steeply Monday morning, it seems as if the Fed needed a “quick fix” to prevent a larger downdraft.

The good news is the bulls were able to defend the 200-dma once again successfully. However, the bears aren’t quite ready to give up just yet.

The Bull’s Case

The bullish case for the market is pretty thin.

  1. Hopes are high for a full reopening of the economy
  2. A vaccine
  3. A rapid return to economic normalcy.
  4.  2022 earnings will be sufficiently high enough to justify “current” prices. (Let that sink in – that’s two years of ZERO price growth.)
  5. The Fed.

In actuality, the first four points are rationalizations. It is the Fed’s liquidity driving the market…CLICK for complete article

History Suggests Record 50-Day Stock Market Rally May Be Just The Beginning

The S&P 500 has gained a record 39.6% since it hit its 2020 low back on March 23. Not only has that rally erased much of the year’s COVID-19-related losses, it’s also the best 50-day stretch in the history of the market.

After such a strong rally, traders are understandably getting uneasy the market is overbought and due for a pullback. However, from a purely historical perspective, the strongest 50-day periods have generally led to even more gains over the year that follows, according to LPL Financial Senior Market Strategist Ryan Detrick…CLICK for complete article

Anyone hoping for a semblance of a normal economy might be left waiting

Rosenberg also warns the return of consumer spending will likely be hampered by high debt loads, especially in Canada, where alarm bells were already sounding over the problem before it entered the COVID-19 economic crisis.

He also believes it’s almost a certainty Canada will lose its coveted AAA credit rating as government relief programs dramatically increase the country’s liabilities. click here for full story

Significant Stimulus Needed to Rebuild Economy, Poloz Says

Bank of Canada Governor Stephen Poloz, in his final speech before stepping down next week, said the deflationary risks associated with the pandemic and lockdowns are more concerning than the potential build up of inflationary pressures and vulnerabilities due to the extraordinary measures taken by policy makers.

“Although a minority of observers worry that these extreme policies will create inflation someday, our dominant concern was with the downside risk and the possibility that deflation could emerge,” Poloz said, according to remarks prepared for a speech to the University of Alberta…… click here for the complete article

Europe On The Brink Of Economic Crisis

France, heartbeat of the European social ideal, is facing an existential crisis caused by the impact of the lockdown of its economy.

Talk of a V-shaped recovery for much of Europe is thought to be laughable despite massive…click for full article.

China’s Newest COVID-19 Outbreak Shows Virus May Be Mutating

During the earliest days of the pandemic, when medical journals like The Lancet were publishing some of the first non-peer-reviewed studies about the virus by scientists and researchers in China, experts warned about mutations in various strains of the virus, though they insisted that there was still no evidence to suggest that the virus was evolving into something more dangerous and more infectious.

Since then, a flood of new research has been published, and scientists have discovered more discouraging signs of mutation in samples of the virus. And yet, medical experts including Dr. Anthony Fauci have seemed at times overly eager to dismiss these mutations, and claim – without evidence – that there was no reason to believe the virus was evolving and changing in a way that might complicate efforts to create a vaccine.

Which is why we’re highlighting this Bloomberg report from yesterday describing the latest findings from doctors and researchers in northeastern China who are seeing the coronavirus manifest differently among patients in this new cluster, suggesting that the virus may indeed by changing in unknown ways and complicating efforts to stamp it out. CLICK for complete article