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What is the stock market pricing in?: Morning Brief (Repost from Yahoo! Finance)

I read this article in this morning’s Yahoo! Finance Morning Brief and thought it worthy of your time.

Many of my clients have been asking me, “Why is the Stock Market going up when the news is so awful?” I’ve said many times you don’t argue with:

1. The Federal Reserve when they’re lowering interest rates,

2. The Federal Government when they are pumping money into the system, and

3. Lower oil prices which save the consumer dollars.

This article substantiates what I have been saying.

Let’s stay connected,
Claude Ohanesian

What is the stock market pricing in?: Morning Brief

Myles Udland, Market Reporter

Yahoo Finance May 6, 2020

Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

It depends on whom you ask.

An eternal question in financial markets is: what is priced in?

The question is sort of silly on one level and the only question worth asking on another. The market’s current rally off the March 23 lows has fanned the flames of a tense debate over whether stock prices are too high, what assumptions those buying equities right now are making, and why stocks are likely to go up or down from here.

The global strategy team at JPMorgan summed up consensus thinking on what’s driving this rally nicely on Tuesday, writing in a note to clients:

We believe that a bullish environment in equities and risky markets is underpinned by six factors: liquidity injections; zero cash rates and low bond yields; the presence of an equity short base and equity underweights among investors; the defensive nature of the risky market rally so far; the relaxation of lockdowns and signs of bottoming out in economic expectations; and last but not least the rapid healing of credit markets.

There are, of course, many things investors know with some degree of confidence.

They know what the Federal Reserve has done. They know how many cases of COVID-19 have been confirmed around the world and the country. They know how many people have died from the disease.

What investors do not know is what an economic rebound from this global forced stop of activity looks like. And investors do not know what actions the Federal Reserve and other central banks might take in the future.

And while strategists on Wall Street are often criticized for herding and offering similar opinions to a diverse set of questions, the current moment has seen a wild divergence between views on just what is being priced in to the market at current levels.

Benjamin Bowler and the global equity derivatives team at Bank of America Global Research argued in a note published Tuesday, for example, that the S&P 500’s rally can only be seen as investors betting on extreme outcomes.

“Given the strong relationship between the length of bear markets and that of recessions, equities are either betting on a record short recession (despite forecasts for near the worst in history), or on the Fed buying equities, believing fundamentals don’t matter,” the firm writes.

“However, while the Fed has surprised in terms of the lengths it will go, it is far from buying equites and likely would only consider it if pressed by new lows. There may be a time to co-invest in equities with the Fed, but it will surely be at lower prices.”

As we’ve highlighted before, Bank of America’s own economics research group is expecting the worst recession on record as a result of the forced stoppage in economic activity during the second quarter.

And while calls have grown that the worst of the economic decline is behind us — Goldman Sachs’ Jan Hatzius said in a note Monday that “economic activity has probably bottomed now” — few expect this downturn to be short-lived.

Nicholas Colas, co-founder of DataTrek Research, said Tuesday, however, that the market is in his view “evenly balanced” right now.

“At [Monday’s] close we’re 19% away from the February highs and 21% off the March lows – pretty evenly balanced, in other words,” Colas writes. “As bits of news come out regarding the restart, we’ll see the market shift its perspectives on the 2021-and-after economy. We expect this will come in ‘2 steps forward – 1 step back’ fashion.”

But Colas believes that while policy actions have been a part of this market rebound, there is something deeper being reflected in the market’s relative optimism about what the future holds.

The full article is available here in the Yahoo! Finance Morning Brief.

To subscribe to Yahoo! Finance Morning Brief, click here.

Bloomberg Evening Briefing (Repost) – Vaccine Optimism – Original Newsletter Sent Monday April 27, 2020

The following is the Bloomberg Evening Briefing sent via email on Monday April 27, 2020.

To subscribe to the Bloomberg Evening Briefing, click here.

A Covid-19 vaccine could be available for vulnerable groups, like health care workers, as early as this year, according to the Coalition for Epidemic Preparedness Innovations. The stunning declaration runs counter to the group’s earlier suggestion that a shot wouldn’t be ready for 12 to 18 months, itself an ambitious target given how many experts say it could take several years or longer. But the coalition, which is funding nine different coronavirus vaccine projects, attributed its sudden optimism to companies working closely together to accelerate the process, and faster enrollment in human trials. David E. Rovella

Bloomberg is mapping the pandemic globally and across America. For the latest news, sign up for our Covid-19 podcast and daily newsletter.

Here are today’s top stories

New York Governor Andrew Cuomo said a statewide “pause” may be lifted for some regions in mid-May. Over the weekend, he announced Covid-19 tests would be available in pharmacies all across the state, the hardest hit in America. On Monday, President Donald Trump was to unveil plans to provide tests to all 50 states, enough to screen at least 2% of residents. The administration’s months of delay in developing and distributing working tests has been cited as a key reason the U.S. leads the world in coronavirus deaths and infections. States like New York have been left to fill the gap. Meanwhile, Trump’s aides are urging the quick reopening of businesses despite warnings that such a move would be premature and lead to spikes in infections and deaths.

Former Vice President Joe Biden called on Trump to launch a new public health jobs corps of 100,000 people to assist with testing and contact tracing, as the presumptive Democratic nominee laid out his vision for safely reopening the economy.

Trump has joined Republican Senate Majority Leader Mitch McConnell in saying Democratic-leaning states where the most Americans have been infected and died should not get federal aid. In response, Cuomo has pointed out that most federal tax dollars come from such blue states, while Republican-leaning red states such as Kentucky, where McConnell is from, rake in the most.

Plant shutdowns are leaving Americans dangerously close to seeing meat shortages at grocery stores. Meanwhile, farmers are facing the likely culling of millions of animals.

The first iteration of the so-called small business bailout resulted in many big companies getting millions of dollars, many small companies getting nothing at all, and ancient government technology simply crashing. Now refilled with taxpayer dollars, it may be happening again. Lenders are being shut out of the system, saying they are being kicked out as they try to process applications on behalf of small-business owners.

British health authorities are warning doctors about a growing number of children with a “ multi-system inflammatory state” that could be linked to the coronavirus.

The debate about when and whether the world can reopen keeps coming back to testing. If only we could test everyone all the time, the logic goes, we could isolate the ill and everyone else could go back to school, work and life as we once knew it. Sadly, writes Cathy O’Neil in Bloomberg Opinion, that’s not quite right. The prerequisite for reopening is better tests, not just more tests.

What you’ll need to know tomorrow

Replay of Post-Easter Economy: The Road to Recovery Conference Call

The following is a link to a replay of a April 15, 2020 conference call where we hear speaker BRIAN WESBURY, Chief Economist at First Trust Advisors, L.P. reviews the latest data on the Coronavirus, shares his insights on current events and discusses the potential impact on the economy and financial markets. 
From Claude Ohanesian:
Brian Wesbury is one of the more forward-thinking economists in the country. He guides First Trust and lectures thousands of advisors, brokers and RIA’s in this country. I find him to be true to his craft and more right than wrong on his predictions. He is one of the best.

Post-Easter Economy: The Road To Recovery

Listen to Brian… HERE.

Careful of the Bounce

The following is contributed by Jack Bouroudjian
From Claude Ohanesian:
Jack is one of the finest professionals I know. He is a contributor to my firm, CGO Wealth Management, LLC as well as to CNBC. He runs a hedge fund and is closely related to a private company UCX. Jack also was president of Commerz bank and helped start the CME. Jack brings a half of a century of experience in trading to CGO Wealth. His insight to the particulars of the market are intriguing and on target. He is one of the best.

You know that feeling when you’re on a roller-coaster that’s clicking higher as it prepares for a drop? That is the feeling with equity traders these days as we witness historic volatility. But make no mistake, caution is still the word until further notice.

The seizure of the economy due to the virus did two very important things:

  • It was the catalyst for a correction. Which was, by all accounts, needed.
  • Showed the conviction of the Federal Reserve to protect the economy ‘at all cost’!

One would think that this combination would create a tailwind for the markets. But there are certain fundamentals which you can’t ignore. We all want the stock market to go back up to levels we saw earlier this year. But the reality is that it’s impossible to price stocks. Not without knowing what the earnings will be of the listed companies.

The future is cloudy for many of the great companies we own because no one knows how long or deep the damage is. If there was ever a time to be patient and let the dust settle, now is the time.

The equity market, after the vicious move down followed by a 50% bounce, is showing signs of strain. It is top heavy. A handful of stocks are responsible for this bounce. In other words, not all companies are participating, and a few big names are lifting all indexes. The Nasdaq is a great example. The FANG stocks are responsible for a bulk of the move with others being carried along by indexers. 

It’s crucial to stay objective. To be as unemotional as possible when facing extreme volatility. Keep in mind, fixed income is telling us a different story. While stocks are bouncing, bonds are concerned about disinflationary pressure. Coupled with headline risk from the virus. Which may continue to make historic low yields along the curve. 

Bottom line: It’s not over yet. 

There is a good chance the lows will be tested again. We’re entering a historically weak period for the markets. But this would give investors time, if not price, to put capital to work. Also, we need clarity to understand the full effect on earnings.  This will allow us to make better judgments on whether the market is too cheap or maybe too expensive. The good news is that great companies are trading at huge discounts! As they say, there’s always a gem of opportunity whenever there’s carnage.

It’s said that you don’t get a hangover from drinking…You get a hangover when you’re done drinking. Well, it appears the party is over for now. And the hangover could last a few months.  Fortunately for us all, this too will pass.