The Guns & Roses Stock Market
Just like the rest of the social distancing induced recession and bear market, the easy money part of the stock market recovery came swiftly. But unlike the recession, the easy money time for stocks appears to be over.
This week has been a reminder that the reopening of the economy is going to be a process filled with interruptions; spiking Covid infections, continuing massive unemployment rate, political fighting, consumers afraid of crowded places, worries about corporate bankruptcies, and the list goes on. But states are indeed reopening and the employment picture is looking a tiny bit better.
The quickest stock market gains typically come in the early phases; the initial big bounce off the low. It was like this during every recession and bull market since I’ve been in the securities industry, 1990. Now, the tough part begins; the part where investors have to actually go back to being actual investors.
It’s accepted by investors that the current quarter is a washout. I'm bringing this up just because I don't want anyone to flip out when they see the horrendous Q2 economic stats and quarterly earnings during the first 2 weeks of July. The next two quarters, Q3 and Q4, the economy will have to show continued improvement in order for stocks to maintain their current level and to keep advancing.
What’s this week’s real volatility all about? Think of it like this: There are two kinds of stocks; the “reopening stocks” and the “non-reopening stocks”.
The reopening stocks, such as airlines, soft goods/apparel retailers, cruise lines, casinos, mall operators, and industrial companies; priced in a worst case scenario by March 23
rd
. That is the low of this bear market cycle. This has been the leading group for the last month, until this week.
The non-reopening stocks include work-from-home stocks like technology companies and consumer staples stocks, such as food, toilet paper, and medical supplies. This group held up better than the other and recovered from a lot of damage
earlier
; with some stocks even hitting new highs.
As investors gauge the speed of the economy reopening, the rotation between these two groups will cause a lot of volatility and confusion. That’s because the end result is binary – either the economy is recovering or it’s not. The price discovery has been brutal and I expect that to continue.
But overall, I do believe the March 23
rd
low sticks and the big down days are extreme forms of investor indecision in an uptrend.
From here on in, the recovery in both stocks and the economy will be a long, drawn out, grueling process. Like I said earlier, investors will have to go back to being
actual
investors. I am declaring today to be a new phase of the stock market recovery; the Guns & Roses market, because investors will need Patience. Enjoy the video below.
I hope everyone has a great weekend!
Mitch
