Evening all.
A busy day in the markets and a busy day from governments around the world. Each announcement of Coronavirus control measures seemed to be accompanied by news of stimulus, support and relief packages. It was a lot for the markets to take in, and I think this is shown quite well on the $SPX500 below which was quite volatile and flirted in the zone of the 30% correction before finally managing to move away.
The rally was muted and unable to push with any momentum, almost putting in a triple top, but thankfully finishing the day not too far off the highs. While welcomed, there was nothing really conclusive about this move and there is still a huge amount of work to be done to close the gap remaining to the Friday close.
Something that appears positive from the day is the 10-year Treasury managing to break back above 1%. The trouble is in came on the back of unlimited promises regarding economic support and stimulus. The stock markets got into all sorts of trouble after the 10-year yield plunged to 0.50% and it was really driving a flight to 20-30 year bonds which increased the market panic we’ve seen over the last couple of weeks.
The 10-year above 1% isn’t enough reason to call a bottom to the stock market rout, but it is a factor will help if it doesn’t collapse again. Add to this the Dow testing the psychological level of 20,000 in today’s session and the SP500 managing to hold and bounce from the 30% correction zone and there is a list of technical reasons to get market participants thinking about what downside remains.
I mentioned last night that Mohamed El-Erian had been looking for a 20-30% correction which was fulfilled yesterday, and he appeared on Bloomberg but he wouldn’t back-up his view by calling the bottom and instead played the open book of suggesting things could get worse.
Understandably, no one wants to call the bottom, but I was right in that more analysts would start to question whether the markets had priced in enough damage. Savita Subramanian from BofA was on CNBC suggesting it was time to start looking at high quality dividend stocks and Howard Marks from Oaktree Capital suggested it would not be irrational to be investing at these levels. Overall though, most are calling for more downside with Goldman Sachs even suggesting that SP500 at 2,000 is a scenario they can see playing out.
So basically they are not much help, you can find an opinion to match your own if you watch enough of them!
I fear the increase in yields could be short-lived and so I took an additional position on the iShares Core 10+ Year USD Bond ETF [ILTB] as it pulled back. If stocks are going to rally it will mean some orders I have placed for DGRO and SOXX might not get triggered and we should see the bond ETF prices continue to fall. I’ll use these moves, if they continue, to build some bond exposure as they could come is useful if this is proves to be a false start to a market recovery.
Thanks for your time.
