The stock market closed up on Monday, seemingly shrugging off Peter Navarro’s comments about the US-China trade deal, continued social unrest and an increase in COVID-19 cases worldwide. Despite the Dow Jones closing up 153.5 points to 26,024.96, the Nasdaq at 10,056.48, up 110.35 points and the S&P 500 closing 20.12 points higher at 3,117.86 there were no clear signals in yesterday’s trading with small and large cap stocks both participating in the rally. No clear path, but Tuesday morning futures currently signal the market wants to continue higher, the S&P 500 is 23 points higher, the Dow Jones is 208 points higher and the Nasdaq is 68 points higher. With that backdrop in mind here’s a look at some topics of interest and concern among TalkMarkets contributors.

Seth Golden in Market Recovery Process Meets Resurgence Fears, a TalkMarkets exclusive, examines all the relevant charts from the S&P to the worldwide amount of stimulus as a % of GDP, which is shown below.

The sum of all Golden’s technical analysis is that the economy is clearly in recovery despite past and future whipsaw events to come. He lines up with MerrillLynch’s current A,B,C,D,E view:

“(A) Asset Classes Confirming: The 10-year to 30-year spread has risen to 75 basis points (bps), a level we last saw in 2016 when the global economy was on the cusp of a synchronized reacceleration. Also, oil prices have nearly doubled since the end of April as motor gasoline demand has risen, with movement of people and goods picking up…

(B) Broadening Participation:..the outperformance has also broadened out to risker areas like Small Caps and Value.

(C) Credit is improving:…with aggressive Fed intervention through rate cuts, “unlimited” quantitative easing and liquidity facilities to support the primary and secondary debt markets, investor sentiment reversed.

(D) Demand recovery supports the medium term: There have been a growing number of green shoots in recent weeks indicating consumers had moved sooner than local authorities to embrace the economic reopening.

(E) Earnings emerging:… it is typical for earnings to trough and rebound strongly in the out-year given low YoY comparisons and the impact of fiscal and monetary policy implementation flowing through the economy, which has a lag time of roughly 3 quarters.”

Good stuff.

In Crypto Markets: Bitcoin Poised For Sustained Bounce, Richard Cox looks at the crypto currency markets and shows (with the use of charts) that despite experiencing volatility “valuations are quickly approaching their pre-crisis levels” and further “Crypto markets continue to show evidence of relative strength when compared to the recent performances of most other major asset classes and this should lend some additional credibility to the space after notable investors and economists have publicly turned course in their opinions.”

Bitcoin Chart: Richard Cox via TradingView

PennyWiser writing in another TalkMarkets exclusive, Are We In A Bubble?, asks just that question.

“Given the country is facing the greatest pandemic and the worst economic contraction in over a century, are the markets really in a bubble, filled with euphoria and decoupled from reality?”

Reviewing the activities of the Fed, Pennywiser notes “the Fed announced that the interest rates are not going to see a rise until 2022 which means the continuation of cheap liquidity as well as lower yields which means it would offer less competition to the stock markets. As the popular saying goes, "There is no Alternative to Stock (TINA)".”

With regard to the so called flattening of the curve, reduced unemployment, improvements in COVID-19 treatment therapies and hopes for a vaccine, recovery sentiment is increasing, “The stock market is also increasingly skewed towards the heavyweight tech-stocks among the likes of GOOGL, FB, AMZN, which have posted estimate beating results and are at their all-time highs further catapulting the indices higher.”

Pennywiser also looks at what the Bears have to say regarding the long lead times of getting a vaccine to market and into distribution, as well as the impact of a second wave of COVID-19 infection noting that the potential impact of a “shift in business models for travel and retail industry as well as on office buildings and other commercial real estates could be catastrophic” and “The effects of the stimulus by the PPP program could eventually wane out leading to lower consumer discretionary spending.”

The conclusion of all this is “While we do not agree with the stock pundits calling a bubble…at the current prices, we believe all the positive expectations are priced in and we do not see a favorable risk-reward for investors at these levels.”

Sam Peterman of The Mises Institute in his essay, Central Bankers Will Bring Us Economic Stagnation, believes that current Fed policies with regard to interest rates as outlined by Fed Chair, Jerome Powell will prove disastrous in the long run.

“If the Federal Reserve persists with zero (or negative) interest rates for the foreseeable future, the American economy will be condemned to stagnation—like Europe and Japan before it—as capital flows away from productive investment and toward ever-increasing debt payments.”

Peterman cites the impact of zero or negative rates on the economies of Japan and Europe which have seen slow or little growth, fears that America could face the same fate if rates are kept near or below zero for an extended period of time.

“It will not lead to more spending and a higher growth rate. Instead, it will erode the profitability of the banks; ensure zombie corporations use cash flows to pay off debt rather than to invest, increase wages, and hire additional workers; and ultimately condemn America to a broken economy with little to no endogenous growth potential.”

Carsten Brzeski of Think.ING in, Eurozone: It’s A ‘V... At Least For Now, says that “The latest Eurozone PMIs add more color to how two months of re-opening economies look like: a strong rebound but still in contractionary territory.”

This is good news, but Brzeski, shares the concern of many that the momentum is likely not sustainable.

“Higher unemployment, companies going out of bust, as well as plans to further cut back on staff and falling orders, suggest that the current ‘v’ -shaped recovery could quickly run out of steam.”

That’s it for this week’s Tuesday Talk.

Tom McCall, a journalist, politician and the 30th Governor of Oregon had this to say about statues and heroes: “Heroes are not giant statues framed against a red sky. They are people who say: This is my community, and it's my responsibility to make it better.”