20200413~20200417 Neutral on the stock mkt
Only the stock market believes in a V-shaped reversal, but still, need to respect the technical.
This week, US stocks continued their strong bull over the past two weeks, ignoring bad economic data and continued to rebound. SPX500 rose 5.81% throughout the week after receiving 10-day support on a small decline on Monday. As of Friday's close, the SPX500 has rebounded 31.36% from its low of 3/23. Although the number of new cases in the United States is on the rise again, the stock market is warmly looking forward to the US economy can rebound in a retaliatory manner after the economic reopen after the US President Trump announced the guidance of reopening the economy and hopes that the states will lift the lockdown as soon as possible and some states will respond (hopefully by 5/1). Overall, the stock market had its fastest decline since the end of February since the 1930s, followed by its best bi-week performance since the 1930s. The rapid rise after the rapid decline, coupled with the market's disregard for various bad economic data, the focus on the global easing of the disease and the government's policy stimulus, have led the bulls to believe that the worst of the stock market is over. However, at this stage, it is difficult to judge whether the market is bull or bear and whether the economy has bottomed out. It still needs to be cautious. The main reason is that the butterfly effect caused by the scale of the epidemic infection and the scale of unemployment caused by the economic lockdown is still hard to estimate. The first is the scale of the outbreak. In the state of infection of more than 2 million people worldwide (not including the undetected black counts in many developing countries), it is extremely difficult to quickly and completely restore the economic activities to the level before the virus outbreak (for example, international transportation are difficult to recover), especially because of the high infectivity of the COVID-19, as long as we are a little careless, it may spread again quickly. Therefore, the economy may be partially reopened, but it is overly optimistic to ask the people to resume economic activities on a large scale as if nothing had happened. The second is unemployment. If estimated by the initial jobless claim, the current unemployed population in the United States has exceeded 20 million, and the unemployment rate has also exceeded the great depression of the 1930s. On the bright side, the current impact is mainly on highly flexible jobs such as tourism and catering. Perhaps part of these jobs may be resumed after the economic activities are partially reopened. However, the scale of unemployment of 20 million cannot be all such easy-to-access occupations and should include other jobs that have longer friction period. Besides, from the perspective of labor demand, the rapid rise in the unemployment rate now is due to the rapid decline in labor demand as a result of the epidemic, and it remains to be seen whether labor demand can rise again as soon as the economy is reopened. The recruitment side looks at the forecast of the future profit prospects, if it is pessimistic or unclear prospects or the company ’s balance sheet has been severely deteriorated by the current economic lockdown and is facing financial difficulties, it is hard to imagine the company would pretend nothing has ever happened and get those people who were just got fired last month back to work after gradually reopen. If the labor demand of an enterprise cannot be picked up at the same time, the unemployed will still face income difficulties and must reduce consumption; those who still have jobs may also reduce their expenditure in case the work is not guaranteed someday. And people to reduce consumption would turn back to crack down on the profitability prospects of enterprises, a death spiral is formed. In short, we think that the epidemic may slow down and the economy may be reopened, but it is difficult to quickly return to the pre-outbreak enthusiasm (the US employment was at its best in nearly 10 years before the outbreak). The next major challenge for the economy is how to deal with such large-scale unemployment. If unemployment is not handled well, even if the epidemic is over, the economy will still have a great chance of continued depression.
From other markets, the economic outlook does not seem as optimistic as the stock market. First, look at the interest rate market. After the US 10-year bond rate fell last Wednesday, it traded between 0.60% and 0.69%. The interest rates fell sharply combined with the rise in stocks and bonds may partly reflect the low-interest rate and unlimited QE, but it may also be a result that bond traders' conservative views on future prosperity. Also in the crude oil market, oil prices have fallen rapidly to their lowest level in 20 years in the past week. Although the decline in the May contract was partially dragged by the selling pressure of rollover, the far-month oil prices have not fallen below yet, nor have they reflected the stock market ’s optimism about the economy and is still hovering at a low level; although copper prices have rebounded by nearly 15% from the low point of 3/20, they have not yet left the weak pattern. On the whole, only the stock market responds that the economy will rebound in the second half of the year, and other markets still view the future conservatively. We tend to view that the rapid rebound in the stock market is reflecting the policy experience of the V-shape reversal in March 2009. Just like the US stocks did not fall when the outbreak first broke out in China and even reached a new high, it also reflects the experience of the rapid recovery of economic activity after the SARS disappeared in 2003 summer. However, after all, history is only similar and will not repeat itself completely. In October 1929, the stock market collapsed 44.31% in 2 months and rebounded 46.77% in the following 5 months. However, since it reached its peak in April 1930, it started another long bear market for 3 years, with a decrease of 82.75% and the most terrifying unemployment wave in the history of the global economy. Having said that, the current technical pattern of US stocks is still strong regardless of the daily or weekly pattern, and it still needs to be respected. However, the rebound has been high at this stage and the price chase still needs to be cautious.
This week, US stocks continued their strong bull over the past two weeks, ignoring bad economic data and continued to rebound. SPX500 rose 5.81% throughout the week after receiving 10-day support on a small decline on Monday. As of Friday's close, the SPX500 has rebounded 31.36% from its low of 3/23. Although the number of new cases in the United States is on the rise again, the stock market is warmly looking forward to the US economy can rebound in a retaliatory manner after the economic reopen after the US President Trump announced the guidance of reopening the economy and hopes that the states will lift the lockdown as soon as possible and some states will respond (hopefully by 5/1). Overall, the stock market had its fastest decline since the end of February since the 1930s, followed by its best bi-week performance since the 1930s. The rapid rise after the rapid decline, coupled with the market's disregard for various bad economic data, the focus on the global easing of the disease and the government's policy stimulus, have led the bulls to believe that the worst of the stock market is over. However, at this stage, it is difficult to judge whether the market is bull or bear and whether the economy has bottomed out. It still needs to be cautious. The main reason is that the butterfly effect caused by the scale of the epidemic infection and the scale of unemployment caused by the economic lockdown is still hard to estimate. The first is the scale of the outbreak. In the state of infection of more than 2 million people worldwide (not including the undetected black counts in many developing countries), it is extremely difficult to quickly and completely restore the economic activities to the level before the virus outbreak (for example, international transportation are difficult to recover), especially because of the high infectivity of the COVID-19, as long as we are a little careless, it may spread again quickly. Therefore, the economy may be partially reopened, but it is overly optimistic to ask the people to resume economic activities on a large scale as if nothing had happened. The second is unemployment. If estimated by the initial jobless claim, the current unemployed population in the United States has exceeded 20 million, and the unemployment rate has also exceeded the great depression of the 1930s. On the bright side, the current impact is mainly on highly flexible jobs such as tourism and catering. Perhaps part of these jobs may be resumed after the economic activities are partially reopened. However, the scale of unemployment of 20 million cannot be all such easy-to-access occupations and should include other jobs that have longer friction period. Besides, from the perspective of labor demand, the rapid rise in the unemployment rate now is due to the rapid decline in labor demand as a result of the epidemic, and it remains to be seen whether labor demand can rise again as soon as the economy is reopened. The recruitment side looks at the forecast of the future profit prospects, if it is pessimistic or unclear prospects or the company ’s balance sheet has been severely deteriorated by the current economic lockdown and is facing financial difficulties, it is hard to imagine the company would pretend nothing has ever happened and get those people who were just got fired last month back to work after gradually reopen. If the labor demand of an enterprise cannot be picked up at the same time, the unemployed will still face income difficulties and must reduce consumption; those who still have jobs may also reduce their expenditure in case the work is not guaranteed someday. And people to reduce consumption would turn back to crack down on the profitability prospects of enterprises, a death spiral is formed. In short, we think that the epidemic may slow down and the economy may be reopened, but it is difficult to quickly return to the pre-outbreak enthusiasm (the US employment was at its best in nearly 10 years before the outbreak). The next major challenge for the economy is how to deal with such large-scale unemployment. If unemployment is not handled well, even if the epidemic is over, the economy will still have a great chance of continued depression.
From other markets, the economic outlook does not seem as optimistic as the stock market. First, look at the interest rate market. After the US 10-year bond rate fell last Wednesday, it traded between 0.60% and 0.69%. The interest rates fell sharply combined with the rise in stocks and bonds may partly reflect the low-interest rate and unlimited QE, but it may also be a result that bond traders' conservative views on future prosperity. Also in the crude oil market, oil prices have fallen rapidly to their lowest level in 20 years in the past week. Although the decline in the May contract was partially dragged by the selling pressure of rollover, the far-month oil prices have not fallen below yet, nor have they reflected the stock market ’s optimism about the economy and is still hovering at a low level; although copper prices have rebounded by nearly 15% from the low point of 3/20, they have not yet left the weak pattern. On the whole, only the stock market responds that the economy will rebound in the second half of the year, and other markets still view the future conservatively. We tend to view that the rapid rebound in the stock market is reflecting the policy experience of the V-shape reversal in March 2009. Just like the US stocks did not fall when the outbreak first broke out in China and even reached a new high, it also reflects the experience of the rapid recovery of economic activity after the SARS disappeared in 2003 summer. However, after all, history is only similar and will not repeat itself completely. In October 1929, the stock market collapsed 44.31% in 2 months and rebounded 46.77% in the following 5 months. However, since it reached its peak in April 1930, it started another long bear market for 3 years, with a decrease of 82.75% and the most terrifying unemployment wave in the history of the global economy. Having said that, the current technical pattern of US stocks is still strong regardless of the daily or weekly pattern, and it still needs to be respected. However, the rebound has been high at this stage and the price chase still needs to be cautious.
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