Since March we have seen the stock market put on a powerful rally after it peaked in February and crashed INTO the coronavirus spread around the world and economic shutdowns associated with it. As the market rallied many people came out to claim that a “V” shaped economic recovery was beginning that would lead to a decade long boom – implying that if you didn’t buy into the rally with the plan of holding you would miss out.
We saw the unemployment rate rise close to 20% and then come off of its highs in last week’s monthly employment figures. We also have seen an uptick in economic activity last month as things throughout the country began to “open back up” and I do not think we will see the type of shutdowns we saw in March and April no matter what happens with the virus. The social costs are just too high.
But we are now seeing clear signs that this is not going to be a “V” shaped bottom as the recovery momentum is starting to lose steam. I have looked at the news in Las Vegas with the travel and casino industry there as one proxy to understand what is happening in the economy. When casinos opened back up in Las Vegas they did see a weekend surge in visits from locals and people driving in from California, but now the visits are dropping back down.
The website www.lasvegasadvisor.com reports:
“Fox5 Las Vegas has a story this morning with the title, “Vegas Impacted as Tourism Plummets.” The report quotes LVCVA CEO Steve Hill, who says that Las Vegas tourism has “regressed a little over the past three weeks, driven by the health situation and health concerns of potential visitors.” The story also cites a survey of 1,200 American travelers that’s been conducted every week since the shutdown in mid-March by market-research company Destination Analyst. The poll, broken down in a Las Vegas Review-Journal story, is finding that optimism about traveling is dropping fast: Last week, 34.7% of respondents expected conditions to get worse, which rose to 47.7% this week; also, nearly 60% believe the pandemic will impact travel plans for the fall, compared to slightly more than 20% who say it won’t. Steve Hill extended that time period: “We don’t really see the potential for much to happen this calendar year.”
Reports are that the “high rollers” who tend to be people who fly to casinos never showed up during the reopening. In conference calls with analysts during their last earnings reports casino CEO’s all said that they were not expecting everything to go back to normal until next year.
The University of Chicago polled 34 economists to ask them what they see happening now with the economy. Instead of a “V” bottom, 73% of them are expecting a rebound (which we have just gone through) followed by a “longer period of slower, mixed growth.”
In other words a flat economy now going forward.
This is exactly what the Federal Reserve projected at its last FOMC meeting when it said it expected the US economy to shrink by 6.5% this year and then grow by 5% next year with less growth in the year after that. Kinda like a muddle through economy for the next several years.
The idea of a “V” bottom in the economy is turning out to become one of the biggest hoaxes I have ever seen in my years of following the markets and the people who are telling you to buy and hold stocks based on it are doing you a total disservice. Are they deluding themselves or just don’t care if what they say is true or not? Sadly in this day and age there are so many people out there like that. Never trust someone who smiles all of the time.
However, that doesn’t mean that the stock market is going to crash next week on July 1st either. It also doesn’t mean that the economy is on the verge of collapse, because it already collapsed two months ago!
All I’m saying is that the economy has bounced off of its lows and that bounce is losing steam. What you see around you in the real world is the way its likely to be now for the rest of this year. This is why it should be no surprise to us that the stock market rally has started to lose steam this month.
If I was 100% invested in the stock market I would take some money off of the table. I would sell stocks and sectors I have losses on and build cash positions for later. This is action time. And I’d look to diversify in things positioned to go up no matter what happens with the stock market and the economy – and right now there is no better example of that then gold and silver acting as “safe havens” in this type of extreme Federal Reserve bailout policies.
This morning the S&P 500 futures are down and gold is up near a new high again. There is a reason for that – and I didn’t even mention that gold seasonally tends to have its best months from July to October.
-Mike
