Amazing rebound of financial markets. Still..
Markets is reacting very positively to any good news (however relevant) coming from science and FED.
This April rebound has been amazing, in many senses unprecedented, like the previous drop.
If we draw a line today, the Nasdaq Composite is down only for a 12% from previous top.
This is something we could call as a "minor retracement" in a historical bull market, which was able to make a +47% in the previous 14 months (Jan 2019 - Feb 2020).
And sincerely I don't think that this is a real representation of the staus of economy, of financials, of future perspective for companies and business.
The chart that we are looking at is more likely a no-covid19-scenario
Yes, we get it, FED has planned vigorous simuli to the economy, science could figure out a test/cure/vaccine soon.
Still... what is happening, what has already happened, and its consequences are far worse than -12%, no matter which bunny can the FED pull out from its hat.
More specifically, ALL the relevant economic indicators of the country are falling, this is true also for any main economy worldwide, with different sizes.
Fundamentals (source FRED https://fred.stlouisfed.org/)
Housing market has kept a positive pace so far, but we expect a drop very soon (when data of March and April will be released)
Inflation is low, and the drop of oil prices is pushing it lower. In short term we could have a negative trend of it, as happened in 2007-2008, at the early stages of financial crisis.
Companies are getting worse. The manufacturing ISM has decreased in February, and March 2020. See how a leading indicator of business is dropping
Credit conditions for companies are still good, thanks to the move of the Central banks. But not everything is going fine...
The Yield curve is steepening and this is typical to happen before recessions, but it is not a leading indicator for recessions. It is much slower.
But here's the worst indicator, by far, which will affect the economy in future:
The Labour market is crashing, because of the social-distance policies, and the drop of jobs in many sectors.
Many people with no job - in an economy founding its 70% of GDP on consumer spending - is the premise for a recession.
There are many millions living paycheck by paycheck, with no savings. The situation for them could be very hard. And will these people be able to pay rents, mortages rates of their houses?
If the crisis of 2008 was originated by a bubble in housing credit, and consequently hit the labour market, this crisis of labour market could affect the housing financing sector.
And who will pay (and when) this huge pack of stimuli "the biggest economic rescue package in modern American history" which the FED is granting ?
You get my point: this situation is not a -12% drawdown situation, not even close.
That being said, the market is mostly unpredictable in the short term, and so it behaved, and delivered an incredible (under these premises) rebound.
The HST model is designed to catch these spikes, happened many times in history, mostly for technical reasons of the buy-sell mechanisms.
But the bottom line is that, even in case the virus is defeated very soon and worldwide, the consequences of this crisis will last much longer, and I think that the markets will revert to reality sooner or later and will hit new lows.
How will we react woth our investment: in this stage, the HST model is the guide we wanna follow.
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