Early indications are flat as the market digests earnings news from Intel (INTC) . While the numbers are better than expected the company pulled guidance for the remainder of the year.
Like many other companies, Intel has seen a boost from a shift to working at home and an increase in demand for cloud services, however after this initial surge the future is quite murky.
Other companies are likely to report similar uncertainty as earnings season continues to unwind but the more important issue is whether this economic uncertainty is going to weigh on the stock market or not.
After a 25% jump in the S&P 500 off the March lows, the market is at an important juncture. Will it regroup after a slight pause and continue to push higher or will the economic uncertainty cause the indices to roll over and correct once again. While the March lows are unlikely to be tested in the near term, unless there is some surprise news, that doesn't mean that there can't be a period of weak action.
The fundamental arguments are sharply drawn. The bulls are optimistic about better treatment for Covid-19, the flattening of the curve and the huge stimulus that will pump unprecedented liquidity into the market. The bears argue that the economic damage that is occurring is unlike anything we have seen and the market is underestimating the breadth, depth, and length of the problems that will occur.
Our job isn't to determine who is correct but to navigate the action as it develops. At this point, the indices are staying sticky to the upside. After some weak action overnight, the futures are now in positive territory and the Intel report is being mostly ignored.
While the bearish arguments may sound compelling, the liquidity and buying interest is rendering them irrelevant. There may be many people worried about what will unfold economically but they aren't acting like it right now.
It has been very difficult for many market players to reconcile the worst economic crisis they have ever seen with a very upbeat market. The fact that it does seem so illogical is creating a 'wall of worry' dynamic. As the market refuses to go back down, underinvested market players put more money to work, and that gives the indices more support.
My game plan is to focus on stock picking rather than market direction right now. While the indices are still a bit extended, they are consolidating and building a decent base. If a trading range develops as I have been anticipating then it should be a good environment for stock pickers.
It is a very strange market environment. Millions of people are dealing with major disruptions in their lives but the market shrugs as if there is hardly a worry in the world. Navigating this action effectively requires a suspension of some of our basic emotions.