After the Fed's action on Thursday, there have been some mixed reviews. There are those who think it's a good thing and those who think it is a bad thing, but the question I keep seeing is: Can the economy recover?
Let me state that I am not an economist and I don't play one on TV. As a consumer, I can tell you I am unlikely to go to large events, until there is a vaccine or at least some serious assurances that those who are at the event are not infected. But I am an observer of human nature, and I can share with you what I have witnessed over the last few months.
You might not recall - but way back in January, when the coronavirus first appeared in the news in China -- I shared with you my experience of living in Shanghai during SARS. This is so much worse than SARS, but the human nature of acceptance didn't change.
In 2003, most in China shrugged off SARS and then all at once they cared, as almost overnight everyone started wearing masks and gloves. Here in the U.S., I can tell you that six weeks ago I began wearing a mask and gloves to go to the grocery store, and I brought my own wipes to wipe everything down. I got funny looks. Then I went to vote and wore a mask and gloves and was scoffed at. Oh, they were polite about it, but scoff they did. At the time I told them a few weeks from now you will be doing the same.
This past weekend I went to Costco (COST) , as well as my local grocery store, and I'd guess 90% were wearing masks and gloves. That is human nature (sentiment) at work. Markets work the same way.
At first, we see breadth not keeping pace (think mid-January) and we ignored it. Then it got worse, and we paid more attention around mid-February. Until, finally, it got so bad and the market went down, and we could no longer ignore it. Heck, we had to sell - around mid-March.
So where are we now? We're in the part of the pandemic that is acceptance. In terms of the market, I think we are mixed. Think about when the Fed first cut rates about a month ago and the market went down. At the time, the narrative was that rate cuts won't get rid of the virus. But now the Fed has done quite a bit more, and so has Congress.
The market has rallied, so we no longer hear that rate cuts won't get rid of the virus. Of course that is still true, rates cuts won't change the virus, but price has moved up, so the narrative has gone away. Instead there is plenty of anxiety about the economy.
We are still somewhat short-term overbought using some metrics (perhaps much more short-term overbought using other metrics). But on an intermediate-term basis we are not yet overbought.
Some stocks and/or indexes are reaching resistance, while others still have room to move. For example, see how the SOX reached resistance midweek last week and has stalled out.
I would sum it up this way. The bulls are wearing masks and gloves and using wipes; they feel protected if anxious. The bears do not believe the protective measures will work and are sitting at home, refusing to leave the house even for groceries. At some point, I suspect the bulls will feel less anxious and the bears will slowly begin to don masks and gloves and delve back in and that's when we'll see sentiment shift.