The focus of the stock market is shifting toward various plans to reopen the economy while at the same time it continues to struggle with the economic fallout caused by the shutdown.
President Trump is set to announce the outline of a plan for reopening and various governors are working on a reopening process as well but regardless of the plans, it is going to be a long time before economic activity returns to something that can be called 'normal'. Regardless of what happens with the coronavirus, there will be some long-lasting changes in behavior that will impact the economy in many ways as it recovers.
While plans for reopening the economy progress, assessment of the damage that has been done will continue. This morning at 8.30 am ET, weekly unemployment claims will be announced. There have been roughly 17 million newly unemployed individuals since mid-March and it is expected that another 6.5 million claims have been filed in the last week. The market is anticipating another huge number so it may not have any major impact at this time.
Also, this morning are housing starts, building permits, and the Philly Fed report. All those numbers are likely to suggest that the economy is still on the down slope and not showing any immediate signs of recovery.
Earnings continue this morning with reports from Abbott Labs (ABT) , Morgan Stanley (MS) , Blackrock (BLK) and several others. So far earnings have not done much to shore up confidence. The financial sector, in particular, has had a poor response to numbers so far.
Technically the indices have had a fast and furious bounce that led to a frenzy of hope for a V-shaped recovery on Tuesday. Sentiment became much more cautious on Wednesday but there is an undercurrent of hope that the economy will begin to reopen at a rapid pace and create some level of certainty.
What we have right now is a battle between the reality of the economic damage that is being done against the hope that recovery can proceed at a brisk pace. While most strategists seem to believe that the recovery process is going to take many months, the market seems to be much more optimistic than that.
Unfortunately, there isn't any compelling reason to believe that the market is going to trend higher from here. The technical setup is problematic with the indices overbought and hitting resistance levels and fundamentals depend on how long the valley of this economic depression continues. There is hope it will be concluded quickly but not much reality at this point to back that up.
My game plan is to look for some trades in the indices, focus on a few day trades like yesterdays Slack (WORK) , and to be very patient in building any long term positions. This is a market with a high level of risk and will continue to reward those that cultivate flexibility.