by Bryan Perry

April 28, 2020

News of the Grand Reopening of America last week was complemented by the signing of $485 billion in additional stimulus money. That kept the fire lit under what has been a remarkable market rebound. The notion of a V-shaped recovery was all but confirmed by Apple’s Tim Cook in a call to President Trump.

“He calls me and the others don’t,” President Trump said in August, according to Fox Business. “Others go out and hire very expensive consultants, and Tim Cook calls Donald Trump directly — pretty good.”

Tim Cook is not alone. St. Louis Federal Reserve President James Bullard also recently said that he saw “no reason” why the economy wouldn’t be able to recover in a V-shaped spike, according to Bloomberg. It seems the market has also cast a strong vote for a pronounced economic resurgence as early as July.

The S&P 500 is facing its first major textbook technical test, where a downward-sloping 50-day moving average (orange line, below) provided stiff short-term resistance last week after two attempts to punch through to the upside. Momentum is on the side of the bulls, while the long chart still favors the bears.

Standard and Poors500

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

We’ll know soon enough who wins this technical tug-o-war. Earnings coming in this week from giants Microsoft (MSFT), Apple Inc. (AAPL), Alphabet Inc. (GOOG), Amazon.com (AMZN), and Facebook Inc. (FB) will either provide the firepower to lift the S&P 500 to 3,000 or show that there is more wood left to chop at lower capitalization levels. (I own shares of Microsoft, but not the others.) 

Navellier & Associates does own AAPL, AMZN, MSFT and FB in some managed accounts but does not own GOOG in managed accounts.  Bryan Perry does not own AAPL, AMZN, GOOG or FB in personal accounts, but does own MSFT personally.

On the economy, current data and corporate guidance seem to argue for more of a “U-shaped” recovery, but at the moment, the Wall Street maxims of “don’t fight the Fed” and “don’t fight the tape” are ruling the investing landscape, since all the money in the world seems to be flowing into the U.S. markets.

Consider that the U.S. stock market, bond market, and dollar index are all trading higher – along with gold! There is no rotation out of bonds into stocks, or out of the dollar and into gold, or out of gold and into the dollar, since it is ALL working now, save for the dead cat bounce of oil in a secular bear market.

So what’s behind the tandem move higher for U.S. bonds, stocks, the dollar, and gold? I’ll bet a country breakfast that there is some real fear surrounding the immediate future of the soundness of the European banks, many of which are now trading below their 2007-09 lows. All the actions by the ECB to shore up the European banking system have badly failed to restore confidence – well before COVID-19 broke out.

The Stoxx 600 Banks Index – which comprises the largest (and mid-cap) banks throughout the EU and the UK – took out its 2009 low last week. This financial tide going out in Europe is directly related to the flood of funds pouring into U.S. assets. This sharp decline is true on the economic side of Europe as well, as the GDP in the Eurozone is contracting hard and bracing for the sharpest drop since World War II.

Stoxx Banks Index

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

There are deep systemic and structural problems with greater Europe that could well lead to the dissolution of the European Union following Brexit. Europe is an absolute mess, and as the third largest economy in the world, they bear close monitoring as to how they manage the impact of COVID-19.

Large bank restructurings and failures across the pond will not go unnoticed in U.S. markets. And yet we live in an era of too-big-to-fail banks, so look for some nationalization of certain banks to occur and even more unlimited monies to be directed by the ECB. The chart above suggests that a hard landing is just ahead, and I’m not sure there is any way to avoid it. Hence, the rush to the safe haven of U.S. markets.

Looking at the most plausible scenario – whether it be a V-shaped or U-shaped recovery – it’s a far cry more positive than enduring a deep and lasting “L-shaped” long-term recession possibility for Europe.

Energy prices may bounce a bit more through production cut manipulation, but that market is now going through a major culling of the herd and price destruction in all sub-sectors of the energy space. That may be great news for consumers and energy-consuming businesses, but it’s bad news for energy investors.

Circling back to this week’s action, look at the earnings results from FAANG and MAGA stocks to monitor a clear impact on investor sentiment. Any negative reaction by the market (selling on the news) to these heavily crowded trades should be used to consider initiating (or adding to) blue-chip U.S.-based dividend and dividend growth stocks. That is (and will remain) the sweet spot for income investors.

All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

Global Mail by Ivan Martchev
It’s Often Darkest Before the Dawn

Sector Spotlight by Jason Bodner
What’s Next: Bounce or Bust?

View Full Archive
Read Past Issues Here

About The Author

Bryan Perry

Bryan Perry
SENIOR DIRECTOR

Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.

Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry

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