We’re not going to get into too much detail here today. The world is looking forward to a COVID-19 vaccine and we think that markets will likely continue to respond positively. On the home front, it seems that most of the lockdown restrictions are being lifted as well, which will likely positively boost selected sectors and stocks in the week ahead.
During the last week we started seeing some signs of distress in the Nasdaq, with some heavyweights beginning to show a little bit of weakness. Our strategists put up two posts on the current outlook on the Nasdaq on the International Outlook blog, which showed some key support levels being tested and broken. With those in mind we are slightly more cautious this week.
One of the things that we’ve been thinking about over the last few weeks is; the past. We find ourselves wondering how similar this current situation is to the one back in 2009/10. Could the monetary stimulus just refuel the rally and keep the market (first) and the world economy (second) pushing higher and harder? Possibly, yes.
The market mechanics are starting to feel broken again… Equities are halfway to completing a V-shaped recovery, Tech stocks in the US are green for the year (this part makes sense actually), Volatility is coming down fast and markets are calming down. All this while the global economy has basically shut down and literally millions upon millions of people around the world has lost their jobs…? Also, bitcoin halving taking place next week. Careful of the bull trap.
We also saw that Chinese PMI numbers came in the lowest on record. In other words, lower manufacturing and production activity in China than even in the depths of the 2008/9 financial crisis. Lower than ever recorded. Considering that China now makes up almost 20% of the global economy and accounts for two-thirds of global growth, this record low PMI reading is truly concerning. The real question now is, when do factories come back online?
It just feels like the entire world is actively choosing to not believe that anything really bad is happening there. We’ve put a lot of thought into what our view needs to be on this topic and it is our feeling that we would rather be “the boy who cried wolf”, and thus make a few errors in an attempt to be extra-careful, before we join the rest of the crowd and just pretend that nothing is wrong.
There is a lot that happened this past weekend! Brexit actually took place… the World Health Organisation (WHO) declared the Coronavirus a Public Health Emergency of International Concern. Our expectation is that we will see heavy losses in Commodities and Commodities stocks, specially industrial metals.
Well, well, well, trends do persist. We are seeing some of the setups from last week starting to work. We also have a copy of the phase one trade deal for download.
And just like that, it’s Christmas time. The market will likely be very quiet during the next week or two, but do not let the low volume environment fool you, there will still be opportunities.