Bassanese Bites: Cover up – July 20 2020
Global equities eked out further gains last week, largely reflecting more vaccine hopes, good JP Morgan earnings and general relief that more widespread lockdowns were not re-imposed in the United States. Indeed, the tech-heavy NASDAQ actually slipped back last week while the S&P 500 gained, with a modest rotation into smalls caps and ‘value’ stocks.
The S&P 500 ended the week at the top end of its 3,000-3,200 range since early July – to be down, unbelievably, only 4.7% from its mid-February all-time high. The obvious question this week is whether the market can break out or is pushed back into its range. The U.S. Q2 earnings reporting season rolls on this week, with 75 S&P 500 companies reporting, including IBM and Microsoft (day-trader plaything Tesla also reports on Wednesday!). We also get July PMI reports on manufacturing and services on Friday.
To my mind, however, the market is still of a view to dismiss most earnings and economic data weakness as ‘old news’ – neither the failure of U.S. weekly jobless claims to fall last week, nor the pullback in consumer sentiment caused much of a ripple. Meanwhile, the market is quick to seize on any glimmer of good news – such as more hopeful vaccine trials or any U.S. corporation managing to report earnings slightly less horrible than expected. Also helping is the fact that bad news likely means the Fed will stimulate even further, with growing talk of the U.S. central bank promising to keep interest rates very low for a very long time.
Indeed, the only factor that seems capable of upsetting the market is lockdown news. In this regard, California imposed further restrictions last week, but stopped short of another full lockdown. And some U.S. states – with even worse virus breakouts – appear to be trialing greater use of face masks in public, as a mean of avoiding lock downs. Maybe face masks (which experts increasingly concede appear capable of at least slowing virus spread) could be a lockdown-avoiding game changer until such time as a vaccine arrives?