Good News Train Keeps Rolling

One of the better known stock market adages is that Bull markets climb a wall of worry. The wall of concern created by COVID has been a long one as the running of the Bulls out of the Bear trap in March continues unabated. The economy can’t fully open up until herd immunity to COVID arrives, thus the worry wall will keep Bullish investor funds expecting more stimulus boosting equities into the 2nd quarter when mass inoculations are due. Warren Buffet is credited with saying, be fearful when other are greedy and greedy when other are fearful – in other words act contrary to popular opinion. Unfortunately, there hasn’t been many bouts of fear in this market for months as the good news keeps rolling in. The stock market Bulls require being fed ever more  positive news to keep charging higher and this Bull has been well fed. Trillions in Central bank and Government fiscal stimulus. A strong rebound in manufacturing and service sectors with faster wage and job growth than anyone had forecast. The negative catalysts are hard to find as short term fears of a dark COVID winter with renewed lockdowns are overlooked by an expected proportionate Federal stimulus response to provide a bridge to a COVID free future.

While some worry about inflation from the sharp economic resurgence juiced by so much artificial stimulus, inflation remains far below the Fed’s target. Few understand that printing money by the Trillions is a response to fears of deflation and the declining velocity of money and does not necessarily cause high inflation. There will be some temporary inflation back above 2% in the back half of 2021 due to supply chain shocks as pent up consumption demand works through the economy, but there are no signs of worrisome inflation on the horizon like the 1970’s.

When Unemployment exploded to 15% last April due to the lockdowns, the leading economists didn’t expect the jobless rate to fall below 10% until 2021 as employment is always a lagging indicator. However, the Fiscal stimulus of $2.2 Trillion and more precisely the Payroll Protection Act kept prevented Unemployment from leaping beyond 20% and quickly gave confidence for businesses to rehire workers. With Unemployment now under 7%, we would expect just modest improvements until Q2 and then potential labor shortages by early 2022, assuming the COVID cures allow a full reopening of the economy by next Summer.

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Disclaimer: This report may contain information on investments that are high risk and have substantial risk of principal loss. It is for informational purposes only. Statements in this communication ...

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