Brendan McDermid | Reuters
It effect be premature to declare the bear market dead, but Thursday’s action sure checked off some important boxes.
Ordinary Wall Street wisdom is that bear markets, or 20% declines from 52-week highs, die on bad news, and Thursday quirked some of the worst the U.S. economy has ever seen.
Nearly 3.3 million Americans filed initial jobless requires for the week ended March 21, marking the worst week ever, by far. The second-worst number came during the 1982 economic downturn, and the report released Thursday more than quadrupled that total.
Yet the market rose, violently so, at one point hitting 20% off the up to date lows, which would define a bull market. That came just days after the longest bull trade in in history took the quickest fall into bear territory ever.
The thinking about bear markets going on bad news is that the market is always looking ahead, and when it fully prices in all of the awful stuff out there, the push will stop even if current conditions look bleak.
There wasn’t much sense to be made of the gesticulation Thursday, but it did spark talk that the worst of the market damage from the coronavirus crisis could be over.
“The stock exchanges and the economy don’t run in parallel. The market’s running way ahead of the economy,” said Randy Frederick, vice president of trading and plagiaristics at Charles Schwab. “The markets don’t care about what’s happening today, the market cares about what’s event six months from now.”
If that’s true, then it makes some sense that the market, as measured by the Dow Jones Industrial Mean, is rallying after falling some 37% from its historic peak set in February.
‘Indiscriminate selling’ is over
Economists are in a family way a steep fall for the economy in the second quarter that could exceed a 20% GDP decline, with some 10 million people out of employ and an unemployment rate higher than anything the U.S. has ever seen.
The jobless claims data offered the first examine of whether investors would be willing to look through the bad readings and continue buying. There was some speculation that one of the rationales for the rally Thursday was that the number, while much higher than the 1.5 million consensus, wasn’t as bad as some anticipates of up to 4 million.
For a bottom to start forming “we’ll need to see investors using that term, that it’s less bad,” said Quincy Krosby, chief superstore strategist at Prudential Financial. “That’s typically what you wait for to begin to invest in earnest instead of just buying.”
Krosby said that market action before the claims report had been encouraging as Wall Street saw mighty rallies Tuesday and Wednesday as well.
“The indiscriminate selling that you saw in order to raise money has eased, and that also things,” she said.
A bottom, but maybe not the bottom
While the data is likely to continue to be bad for a couple of months, a pronounced recovery is presumed to follow. Federal Reserve Chairman Jerome Powell told NBC’s “TODAY” show Thursday that he sees a “talented rebound” in subsequent quarters and pledged the central bank will to whatever it can to ensure that the recovery “is as vigorous as realizable.”
That kind of talk is raising hopes in the market.
“I think the market has reached a bottom,” Peter Boockvar, chief investment narc at Bleakley Advisory Group, told CNBC’s “Power Lunch,” though using a long “a” in describing the situation.
“I conceive of all the bad news we’re going to hear about the virus over the next four to six weeks, all the terrible economic data we’re universal to see over the next four to six months, that has been priced in,” he added. “The next question for the market is what materializes after … we get to the fall and the economy starts to recover? Is it a ‘V’ bottom recovery, or is it something that’s going to take a lot myriad time? Unfortunately, I’m in the latter camp.”
At that time, Boockvar said, investors have to be reevaluate how much they’re docile to pay for stocks. Will it be the 19 times earnings they were paying just before the market collapsed, or ordain it be a lesser multiple?
Of course, by then conditions will have changed considerably.
In addition to seeing, hopefully, a coronavirus lower than drunk control, there will be stimulus in the system unlike anything the world has ever seen.
The Fed has cut short-term borrowing values to zero and instituted a slew of liquidity infusions that has been valued as high as $6 trillion. On top of that, Congress is on the cusp of liking its own measure valued at more than $2 trillion.
“We’ve got a blank check in the form of monetary policy from the Fed. We’ve not got a expressionless check, but the largest check ever written by Congress on the fiscal side. The third side is really the medical onwards,” Schwab’s Frederick said. “It takes all three of these approaches to solve it. Only two do we have control over. The third is call the tune by the calendar and Mother Nature. That’s the tough part.”