Stocks Continue to Climb Despite Exploding Unemployment

Stocks

The number of new unemployment claims in the U.S. blew up to 3.28 million, but we all knew that this was coming. This included the stock market which continued upward.

It might not seem to make much sense that we could get the worst jobless claim report in history and see the stock market rally in the face of this. Stock markets certainly normally respond to bad news, but the direction and extent of stock market moves always involves the relative strength of the opposing forces on the buy and sell sides of the market.

Bad news like this jobless report may increase the appetite of sellers, and we could describe the movement of stock prices as the net effect of the appetite to buy and sell. The appetite to buy is so strong right now that neither this report nor the escalating number of coronavirus cases could reduce it very much.

Excluding the U.S., New York State has enough cases to put it into the top 5 countries in the world, now only behind China, Italy, Spain, and Germany. New York looks like it might be settling down now, but the numbers in other states are starting to really climb, seeing the country pass not only Italy but China as well as they break through 85,000 cases now, at a pace that no one will ever be able to keep up with.

We are also setting records every day with the number of new cases worldwide, a number that is still accelerating, and while this has served to stoke stock market panic in the past, we seem to be hitting that magic point where the eagerness for value is overtaking the fear of further losses from this ordeal. This is how all bear markets end, but the circumstances surrounding this one affords even more power to the value side than we ever see.

The reason for this is that the big drop in stock prices, as well as the economic damage that we have suffered and will continue to suffer for a while yet, have been driven by events of a temporary nature and things will turn around far more readily and reliably than normal economic downturns do.

Normally, it takes quite a bit of time to go from an economic crisis to economic recovery, even when governments open up their wallets as much as they do during these times. It is easy to understand why, and the best way to understand this would be comparing high unemployment that requires a lot of job creation to counter versus employers simply being allowed to open their doors.

It really is all that simple, and President Trump’s speaking of hopefully opening things up by Easter may have had more of an effect on investor confidence than anyone may have thought. Never mind that he doesn’t have much influence in this area, which is mostly left to individual states, and we may only imagine New York Governor Andrew Cuomo, with all his proclamations of doom, somehow deciding to go along with what the President wants to get a feel of the pushback we may see.

Just the fact that the economic side of things has at least someone speaking for it is actually a pretty big deal, even though this view may still wilt in the face of the concern that is keeping their boots at our economic necks. It’s not that Trump is standing alone here, as he does have the real deciding factor on his side, how the numbers will subside in the coming weeks.

The more optimistic views of Trump are placing him even more at odds with the majority of the media, who never miss an opportunity to extend their vendetta against him by vilifying him at every turn, and blaming him for this whole mess is par for the course for them. Those not much in the know, including anyone who uses these news outlets for their information, might even think that this is actually all his fault.

They are currently debating whether to even air his briefings, due to claims that these debates are so full of lies, without even bothering to mention which of his statements are even alleged to be so. Their hatred of him has now become so intense that they no longer have to pretend to have a basis for their beliefs, as their just being against Trump is enough in itself.

This is just all a sideshow though, but it is encouraging that the stock market has seemed to place less weight on the fear mongering that the majority of the media continues to shamelessly promote. Trump, in an interview Thursday night, pined away for news reporting that places truth at the forefront, and as naïve a view as that may be, it doesn’t seem too much to ask that they at least attempt to justify their vicious attacks on him, bringing them to the surface to expose their ridiculousness.

Fiscal Stimulus Will Help Patch Wounds, but This Only Ends When the Restrictions Come Off

The stimulus bill that is working its way through Congress is certainly not in itself adequate compensation for the economic damage already done and the further damage to come from this crisis, and may even make the unemployment numbers worse, by paying people up to twice their wages to quit and stay home. This bill does not add any jobs, but it certainly will reduce employment, and we’re stuck with waiting to see how much.

This part of the bill is being used to raise the wages of lower paid workers, something near and dear to the hearts of Democrats, if only temporarily, but this is not a good time to increase unemployment numbers. Enough money is already being spent on this to waste it on both reducing employment intentionally and providing windfalls to workers to encourage them to quit their jobs.

Defenders of this stupid idea claim that the job market itself will equalize the situation, should they be forced to raise their wages to compete with the government’s offer. These employers cannot pay their people this much though, so what will happen instead is that they will have to get by understaffed, further increasing the level of inconvenience that customers will face as they look to purchase their needs.

What this bill is serving to do as far as the stock market is concerned is to serve as a line in the sand where the excitement of the opportunities that stocks provide at these lower price levels started to exceed the fear of further declines.

All the while on the way down, the bulls have mostly been lying in wait until the right time comes, aside from the cameo appearances that popped up here and there. This beast has now awoken, inspiring a move up over the last 3 days of over 20%, of a magnitude that has not been seen since the 1930’s, a recovery strong enough to officially take us back to a bull market.

Given all the volatility we’ve seen lately, and how willing the market has been to turn hard in the other direction on a whim, we can’t be sure that we have even marked the bottom of this move yet, although it’s quite likely that we have though given the substantial re-entry of the value buyers.

Standing on the other side of the court is the still menacing-looking coronavirus, which is far from out of gas yet. The numbers can only stop growing when our testing stops growing, which in itself reveals more and more existing infections rather than representing new ones that day.

If everyone were tested immediately, we would see the number of people infected grow massively, given how often it is asymptomatic. We wonder why those whose business is to scare haven’t projected their statistical samples upon the public to make their numbers explode, but we’re doing the same thing anyway, albeit more slowly. Perhaps a slower burn might be scarier overall.

There is another major positive factor that is supporting the increase in outlook by the stock market, which is the Fed’s stepping in to help the corporate bond market. This will allow companies to continue to be able to borrow at more reasonable rates, a more direct and needed approach than their either lowering their rate or buying more treasuries.

We can make the money supply a lot bigger, but when risk concerns have the market setting rates that your company borrows at higher and higher, this is a crisis in itself and addressing it was not optional this time.

The Market Still Has a Long Way to Go to Correct from This Panic

Seeing this happen certainly had buyers leaning toward getting back in, and the banter on the street has moved markedly from how low will this go to look at all that opportunity out there now. This was maintained even after we rebounded by over 20%, showing that the promise that they were seeing was in well excess of this.

We are still a long way from where we were prior to this crisis, so there is plenty of room to grow. We might think that we’ll settle in somewhere between here and there, assuming that the coronavirus scare is causing actual economic damage that will need to be remedied first, but we’ve primed the pump so much with stimulus that once the sun rises again, our bull will be stronger than before.

When the dust settles from this, we’re in store for some real growth, substantially greater than just the 2% that they were predicting for us before all this. This will ultimately cause some real problems when the Fed has to put on their hawkish hats again, but we look like we’re headed for a party in the meantime.

A lot of the money going back in stocks now is the sort that won’t be too put off by some more back and forth, although if we do break through the bottom, the weight of the fears that would inspire such a move may take us down quite a bit more.

It is easy to pick bear markets, such as this one was, but not so easy to pick the end of them, and this one is a perfect example of this as well. You don’t need all that much certainty though, and if you do, you will miss the move.

It’s not too late to get on this train, and the reason why we don’t have to wait for a lot of certainty is that we can protect ourselves if we end up being wrong. This is no time to be thinking buy and hold, as it has to be buy when you think things are turning, wait until you see that you are right, and then hold if you were right, if you are of that sort.

The rally on Tuesday was a strong sign that we have turned the corner, and that was the ideal time to get in, but should the move not continue, we need to be ready to jump off and wait for another entry rather than hang on and bear the loss of our mistake. It may not even have been a mistake initially, but when staying in becomes a mistake, these are mistakes we need to avoid.

It’s not that hard to know when it’s time to bail though, as the intention here is not to lose money, as we want to jump on during an upward move, and anything else tells us that the time is actually not right.

This is a time where we need to be even more careful, given that things are still so volatile, and this causes a lot of investors to be too afraid to enter when we should be considering doing so. The way to manage this is to still be prepared to enter, but also be prepared to exit when the fears you have start to manifest.

Those who do not trust themselves or find themselves on the stubborn side, and especially those who hold the dangerous idea that losses are not realized until a position is closed, definitely do need to take this into consideration if looking to trade this mess. We all need to take care here at this most unusual time.

Robert

Editor, MarketReview.com

Robert really stands out in the way that he is able to clarify things through the application of simple economic principles which he also makes easy to understand.