Home 2020 Commentary: Paul Ebeling on Wall Street, What the Bulls are Telling Us

Commentary: Paul Ebeling on Wall Street, What the Bulls are Telling Us



Last Week’s Action

The large-cap indexes were lower Thursday, and flat Friday. On the week though the S&P 500 (+3.2%), DJIA (+3.3%), and NAS Comp (+3.4%) rose 3%+, and the small-cap Russell 2000 climbed 7.8%. The Bulls are in charge.

Technical Analysis

S&P 500 broke higher Wednesday, opened lower Thursday and tested that high and faded. Friday was a slow pre-Holiday low volume day.

NAS Comp was sluggish but it broke to a new recovery high intra-day, but faded on lower volume and a narrow breadth. This was a good move to a higher recovery high as the up-down, up-down back and fill pattern has resumed. The Bulls are in charge.

Now, all 50 US states have partially reopened and Fed Chairman Powell said again that the Fed is not out of ammo. At its high last week, the S&P 500 was within 20 pts of its 200-Day MA at 3000, and traded at its best marks since 6 March and as I write this commentary the June 2020 SP mini’s are + 50.75. The Bulls are in charge.

The best explanation of this resilient stock market is that it is sending us a positive message about a rapid recovery of both public health and corporate profits.

The pundits are having a hard time figuring this out.

Have the record number of investors in the stock market lost their minds?” asks a New Yorker headline. The article paraphrases the Yale economist Robert Shiller, who has issued a warning to investors: being in the market at this point is much riskier than it appears.

The business cable news channel CNBC refers to “the puzzle that is the current relationship between the US stock market and the underlying economy.”

And 1 business news website declared “If forecasts for a 30% to 40% decline in gross domestic product turn out to be accurate, then the US stock market’s valuation is more disjointed from the underlying economy than it’s been since the dot-com bubble in 2000.”

Paul Krugman of the NY-Ts and a Nobel-Prize-winning economist, wrote of “the disconnect between stocks and economic reality.” I have never know Mr. Krugman to be right!

On the resiliance

Some of the resilience is driven by technical factors such as automated rebalancing of target-date retirement funds or other portfolios that have a fixed stock-bond percentage split.

Low interest rates mean investors seeking income have to seek out dividend-paying stocks, because savings accounts and government bonds are not paying out enough to stay in.

Savvy investors who lived through the Y 2008 financial crisis learned that dire times are good times for long-term investors to accumulate shares at low prices that will recover in value. Remember that stocks are a promise of a share in eventual future earnings. Most people think the world will recover eventually.

The Big Q: How long it will take?

The Big A: It has begun, and I suspect that it will take a Q or 2.

Stock prices, and dividends, are measured in USDs that are worth less in gold than they were before the C-19 coronavirus outbreak, so anyone talking about stock values needs to be mindful of the unit of measurement.

Betting that a share is worth more may just be a different way of betting that the USD it was bought with is worth less.

Example: if IBM stock soars to 150 from 100, another way to say that is that the Buck that once bought 1/100th of a share of IBM now only purchases 1/150th of a share of Big Blue.

It may be a statement about the decline of USD, rather than about the rise of IBM.

The most long term story is that investors betting their own or their clients’ money have a different, and more optimistic take on the C-19 coronavirus than the newsroom editors and public health officials do.

The newspaper editors for the most part have an interest in emphasizing the bad news.

No one is much interested in reading articles about mild or asymptomatic cases of C-19. Those get buried.

People are interested in reading articles about otherwise healthy 40-yr-olds “cataclysmic spiral from avid skier, cyclist and runner to grievously ill patient,” or the 14-yr-old, “previously healthy… hospitalized with heart failure.” according to 1 pundit I read this weekend. You will not find any of that stuff in this column.

You have to stumble on a doctor’s article stating, “It appears that most Covid-19 patients experience relatively mild symptoms and get over the illness in a week or two without treatment.”

The MSM’s news providers have a financial motive to emphasis the worst news, the public health establishment and the politicians that employ them follow suit and emphasize the worst-case risks, thus getting their names in the papers and interviewed on TV.

That scares people into staying home, thinking it reduces the transmission of the disease.

Plus, it justifies some of the more extreme and intrusive measures taken, such as restricting gatherings and ordering the closure of schools, places of worship, playgrounds, and many businesses.

To offset that self induced disease chaos, we have the wisdom of the financial market with its optimistic outlook about the speed and degree of economic recovery than do the MSM’s edited experts.

Remember, always take what the market gives, and your money is your responsibility, so tune out the Noise!

Have a healthy week, Keep the Faith!

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Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.