On Monday it looked like the big counter-trend bounce off the March 23 low might be coming to an end. However, better-than-expected coronavirus data, some early plans for restarting the economy and promising news on a Covid-19 drug kept the trend moving higher.
But it isn't just positive news that is keeping the market running higher. Poor positioning, fear of missing out, the liquidity created by the Fed and the usual assort of computer games are providing upside fuel as well. For many individual investors the market movement seems illogical in light of the tremendous economic issues we are facing but what choice do they have but to go along with the game?
The bearish case here appears to be simple and easy. We have 25 million people suddenly unemployed, most of the country is still shut for business and there is little clarity about how long the economic bleeding will continue.
The bulls tell us that the shutdown will end quickly and the economy will quickly regain its momentum. Plus there are trillions of dollars from the Fed that will help keep things moving. Any economic weakness will be overcome quickly -- so we better buy now.
The battle lines are clearly drawn and next week there are several hundred earnings reports that are going to paint a picture of what is really going on out there. Earnings this week from banks did not receive a very positive response so it will be interesting to see if that is sector-specific or indicative of something broader.
If we step back and look at the big picture it looks quite strange. One of the most dramatic international events ever is creating an unprecedented economic shock, yet the market acts like it wants to quickly shrug it off and return to where it was before it even started. It doesn't seem very logical but when the Fed is throwing around $8.5 trillion then it doesn't have to be very logical.
Have a great weekend. I'll see you on Monday.
