I Can't Trust This Rally

Markets rallied boldly this week, the Dow posting even a mini-bull-market just these past few days since almost falling below 18,000, even as it seems the global fight against coronavirus has only steepened in its ferocity. Optimists may say that the market has already priced in the possible outcomes of the pandemic and maybe even too much so, bolstered in that view most recently by Thursday's soaring rally in the wake of news that weekly U.S. new unemployment claims reached 3.28 million, almost double expectations of 1.5 million and multiples ahead of the prior record of 695,000 in 1982.

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Data by YCharts

It is difficult to have any certainty about any but the most cash-rich, defensive companies in these extraordinary times. Even the most careful predictions of the fallout from this coronavirus fight are inaccurate and wild at best as we saw Wednesday evening when Singapore reported a -10.6% annualized GDP contraction as compared to roughly -4.4% expected.

With the few, immediate economic numbers we have already appearing worse than predicted it is difficult I believe to argue that markets have already correctly predicted the true earnings, market, and broader turmoil likely let alone possible from the coronavirus pandemic. Just like how the Dow was still trying to pass 30,000 at the same time it was clear coronavirus was spreading to multiple nations at astonishing, and devastating, speed, it appears now there may be froth again as the understanding of the potential financial contagion is lost to day-trading.

Downgrades For You, Downgrades For Everyone!

We are nearing earnings season and already we see every day that not only does nearly is every sell-side equity rating a downgrade but, shockingly, even S&P 500 titans - Ford, Delta, etc. - are having their credit downgraded by the rating agencies not just a rung or two but to junk. As the financial situation is more clearly revealed for many companies, for example as The Cheesecake Factory said on Wednesday night it wouldn't be able to pay its April rent on any of its roughly 300 stores, and potentially worsens as the cycle of spending and credit shrinks many more companies may soon face even further credit downgrades too.

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Disclaimer: These are only my opinions and do not constitute investment advice.

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