My 2 cents’ worth... not as an investment advisor, but simply as someone playing the stock market continuously since college 30 years ago... the recent rally was irrational and unsustainable. The market was performing like investors were expecting a really quick economic recovery and just a modest hit to corporate earnings... when neither of those things seem very realistic at this point.
Let’s be really frank about where we’re at. We have certain regions, mostly “blue states,” that are in no particular hurry to get back to business. The modus operandi has moved from “flattening the curve” to the mentality that new covid19 infections and deaths can’t be tolerated. That’s a darned hard standard to meet.
Next, we have entire sectors of the economy (e.g., travel, entertainment, auto manufacturing, etc.) that are either totally shut down or shut down ~90%. We have certain legacy parts of the retail sector (e.g.., department stores and malls) that were *already* on life support now looking at total failure. We have an energy sector that is hit hard by low demand and very low prices.
In short, the market *should* be pricing in more of this bad news... and *should* be retesting the March 23 lows. What’s been keeping it up? Well, possibly all the liquidity that the Fed has been pumping into the economy has got to go somewhere. There’s an old saying though that in the short run, the stock market is a voting machine but in the long run it’s a weighing machine. Corporate earnings are either going to take a substantial hit for the next year or more or they’re not. The market has recently been betting on the latter, though the former looks more realistic to me. In short, Dow 18,000 looks more likely to me than Dow 28,000.
The market can remain irrational longer than you (or anyone) can remain solvent.
I spoke with someone very high up in a mid-sized luxury hotel chain. You know they all have restaurants and bars in them. They have near zero occupancy of course, except that some are giving rooms to hospital workers so they don’t have to go home and risk taking the virus from work to their families. She said she believes 75% of the restaurants in the big cities won’t be able to re-open. That’s probably 10 million jobs that won’t be coming back anytime soon. That’s going to impact their suppliers. That’s going to impact landlords. That’s going to impact banks.
And it’s just a microcosm. Unemployed service industry people can’t pay rent. That impacts landlords. That impacts banks. You get the picture.
CA Gov Newsome is talking about $30 billion in lost tax revenues to the state. I think it will be more than that. He wants a “federal” bailout. Federal bailout means taxpayer bailout, from people who aren’t making money to pay taxes. He isn’t talking about trimming the state’s budget which, per capita, is apx twice that of Texas and Florida and he wants Texans and Floridians to bail him out. As does IL gov Pritzker. And Cuomo. The three most profligate spenders won’t change their modus operandi even when their own citizens are suffering by it and expect all the other fiscally prudent state residents to bail them out.