April 3rd, 2020 –

This morning’s economic report was far from rosey, with 6.6 Million initial jobless claims for the week. This was far ahead of the, roughly, 3 Million estimate and well over the 4 Million ‘whisper’ number. The initial print took equity futures from up 1% to flat within seconds; however, when the bell rang a strange thing happened, stocks traded higher. 

That’s right.  Within minutes, the stocks flipped from red to green and never looked back. Now, let’s keep things in perspective, as the Dow sits around 22,000 roughly 4,000 points off the lows but still 7,000 points off the highs. In summary, we have a long, long way to go.

The reason that I’m writing today is, not to highlight one positive day in the market, but as a reminder that markets often act much differently than the headlines might forecast and will often move ahead of the news. This is why, so often, markets will rise on poor news and decline on good news. The idea is simply, if it’s this bad, how much worse can it get? 

Something else happened today that won’t get many headlines but is worth mentioning. Oil jumped by more than 20%, on a tweet from President Trump mentioning positive dialog between Saudi Arabia, Russia and the US. This immediately gave more fuel to the market and once again solidifies just how important this underlying story is regarding the market. 

From my vantage point, the market is working through the newsflow regarding the virus and now looking past quarantine. Stocks have taken a beating, and I get the impression that investors are now starting to pick through the pieces and grabbing companies that clearly will not go out of business. While the newsflow, regarding the virus, is horrible and downright scary, there is still no question that we will come through this and eventually be on the other side. Unfortunately, many investors will wait for this all clear signal; and, by that time, my impression is that the market will have already seen its lows and left them far behind. 

I find the following charts incredibly telling. The first is the spike in Jobless Claims, that  puts into perspective the magnitude of where we are. As you can see, the spike makes 2008 / 2009 look like a blip on the radar, and I understand that this crisis came extremely quickly while the 08 /09 crisis took months to unfold.

The next chart shows mutual fund outflows as investors leave this market in droves. 

I do not believe we go straight up from here. My guess is that we continue to bounce around with fits and starts along the way. I feel very comfortable with our positioning and, despite the massive exodus from stocks by the general public, I feel we’re getting much closer to opportunities and will be looking at reallocating idle cash in the near future.