Sentiment Shifting

April 13, 2020

Weekly Market Update, 2020-04-13. The S&P 500 is basically flat this morning at 2775. Markets were closed Friday for the Easter weekend. Through Thursday’s close, changed sentiment rallied the S&P 500 about 25% from a low reached on March 23. The broader market average has also retraced half of its initial drop from its record high. The Dow Jones Industrial Average is up more than 28% from its late-March low while the Nasdaq Composite jumped 19.1% in that time. Cruise lines, casino, bank, and energy stocks are among the best performers since the rally off the lows began. This, after they lead the market on its way down.

Sentiment shift factors

The market’s rally has been fueled mainly by three factors: an improving outlook on the coronavirus outbreak, massive monetary and fiscal stimulus and stabilizing oil prices.

This past week, the Dow had its seventh-best weekly performance ever while the S&P 500 posted its biggest one-week gain since 1974. The Dow’s fifth best week ever was on March 27, showing the historic nature of this comeback. That being said, the team at OHFG has previewed this kind of rally since Tuesday March 24. For the last three weeks, we have stressed and provided historic evidence that the time periods in the market typically follow the worst.

Sentiment towards Covid waning

The negative “momentum” of the virus peaked globally the end of the week of March 20 and stock and credit markets looked to have troughed then. In the USA, the negative momentum of the virus peaked almost 2 weeks ago, as new daily case counts in NYC peaked and Governor Cuomo sounded an early more optimistic tone.

Late last week, Dr Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said the U.S. death toll from the coronavirus “looks more like 60,000.” That’s well below the Trump administration’s pessimistic estimates about 3 weeks ago, ranging from 100,000 to about 240,000 deaths. Also, Fauci added that antibody tests for the coronavirus have been developed and will be available “very soon.”

Sentiment towards stimulation waxing

Last Thursday, the Federal Reserve released details on a group of programs aimed at supporting the economy. Those programs, which total up to $2.3 trillion, include loans for small and medium-sized businesses along with the purchase of investment grade and junk bonds. That announcement came after the Fed launched an open-ended quantitative easing program.

Sentiment is shifting as well. Today, the team at Goldman Sachs led by David Kostin says the worst of the market rout is behind us. (Stop the presses!) Their “previous near-term downside of 2000 for the S&P 500 and breaking the lows of March 20 is no longer likely. Our year-end S&P 500 target remains 3000 (+8%),” says the team in a note to clients on Monday.

Your customized plan

We want to reemphasize the importance of remembering your particular financial plan and investment allocation. Together, we based your plan on your goals, risk tolerance and time horizon. And it was constructed knowing that there are going to be periods of extended market decline. All of this is a part of being a long-term investor. And everyone is going to feel fear when the stock market dips into bear market territory as it currently is. So, that sentiment is completely normal, and it’s why your advisor and the investment team at Oak Harvest are here. We are here to help you deal with that emotional rollercoaster, and to prevent long-term investment decision making based on short-term events, fear, or panic. We remain committed to making the best investment decisions for our clients on a daily basis.

Resources

  • Check out these helpful podcasts by Chris Perras, CFA®, here.
  • Below we show one of the behind the scenes metrics we’ve been seeing for the past 10 years. Investors have conveniently decided to ignore or dismiss the past 6 weeks as it didn’t fit the missive of a looming “depression.”  This looks like a pretty tight fit to the team at OHFG. It is the Federal Reserve balance sheet versus the SP500 from 2010-2018.

stimulant not just sentiment

This is what the two graphs look like now. If you believe that the Federal Reserve and other government spending programs will eventually be stimulative, this is a bullish longer-term picture as the Feds balance sheet now exceeds $6.5 trillion and is still climbing. This data is available to the public from the St. Louis Federal Reserve’s own website:

long term sentiment into action

 

 

Disclosure

Weekly market updates contain general information and express the views of Oak Harvest Investment Services. Oak Harvest believes that all data, articles, and information cited are reliable at the time of creation. However, Oak Harvest does not warrant any information contained herein to be correct, complete, accurate or timely.

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