Situation of markets on March 8th 2020
We all know there is a very difficult situation in worldwide financial markets. The short term moves of markets are pretty unpredictable and past week has been a cray roller-coaster with huge ups and downs.
I am afraid we haven’t seen the bottom yet, and the reason is that the virus has hit China, Far East countries, is actually hitting Europe, but hasn’t changed lives in America so far.
Not that anyone hopes that, but it is now a realistic perspective: virus spreading in the US too, changing the entire situation.
During last week we collected news about the general condition of the US economy, and we were somehow trying to find out if the CoVid19 event is hurting the fundamentals of the economy or not.
The answer on March 8th is a big "NO",
but I think it should be declined as a "NOT YET".
So, let me shortly recap the main points of latest macro data:
Fundamentals
Last week I was stating that - considering the only status of the US economy, represented by the Fundamental Indicator in the HST model - a “V” shaped recovery was the most likely scenario.
But I was also thinking that the contagion course of events could have been changing these premises, affecting the fundamental conditions of the US economy.
But nothing has shown up in the data yet:
- Inflation is still very low, eventhough increasing
- Companies are doing quite fine. The manufacturing ISM is not brilliant, but not bad and new data coming are stable.
Credit conditions are still very good, getting better thanks to the move of the FED (cut of 0.5% in rates, to help corporations for the upcoming issues) - The Yield curve is steepening and this is typical to happen before recessions, but it could take years before a recession actually shows up
- The Housing market is doing very fine right now and getting even better in last macro data released
- The Labour market is also doing very fine right now: unemployment rate is at its lowest levels
(source: FRED economic data)
Conclusions:
1. at a wide look, in late February 2020 the US economy is looking strong and no recession is likely in the short-medium term
2. markets have fallen sharply because of the fears of this spreading contagion, returning the levels of market from overbought to oversold. There could be a strong season of this bull market , with new highs, but only under the condition that economy won't be hit by this event.
3. We wanna close with a positive sign: situation in China is now getting better, few new contagions are added every day, the contagion seems to be under control. Other countries are still in the middle of this fight.
But maybe the US could learn from mistakes and successful moves of other nations, and even in the case that CoVid spreads in America, there could be minor and manageable consequences.
The HST model is designed to respond to these smaller drops after a while, but it is stronger in avoiding the big drops happening during recessions / bear markets.
Members of the Educational HST service gets daily signals coming from the model and can respond with proper actions.
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