Whether there is or isn’t a recession, and whether it’s a long one or a short one, remains up for debate among our market mavens. However, there’s a growing consensus at least that a total meltdown isn’t in the cards, thanks to aggressive rates cuts and other actions by the Federal Reserve.
As the experts watch, wait and wonder, concerns center on the health of the battered services sector, the damage done to airlines and that ability of American consumers to send the economy back on the road to recovery once $1,200 check hit their bank accounts.
On one hand, the financial crisis is in many ways unprecedented, as is the coronavirus. On the other hand, the policy responses are also in many ways unprecedented. That is not to say that the financial crisis is going to go away any time soon. And existing stock prices are likely to continue to decline.
But the policy responses are probably laying the foundation to prevent Armageddon.
Depreciating assets, increasing regulation, government intervention, negative earnings surprises, equity offerings, and now a recent rally are great fodder for the media. Some investors, sensing undue fear, are trying to ‘bottom fish.’ That could be quite risky. A classic value trap of “stocks that appear to be undervalued but have no visible catalysts to keep them from becoming even more undervalued. Value investors typically underperform by buying stocks too early, and our strategists’ work continues to strongly suggest that global financials fall into the ‘value trap’ category.
Fed chief Powell’s fears of recession are driving investors out of the markets.The short-term recovery on Wall Street slowed the price slide somewhat. “Sell in May and go away” – the old wisdom of the stock market seems to be true – even in Corona times.
Leading NASDAQ Composite (INDEXNASDAQ: .IXIC) stocks performed poorly today.
Paypal Holdings Inc (NASDAQ: PYPL) 142.01 USD −1.72 (1.20%)
Netflix Inc (NASDAQ: NFLX) gained 30 points in the early hours but lost all gains afterwords 439.02 USD +0.75 (0.17%)
Facebook, Inc. Common Stock (NASDAQ: FB) 204.35 USD −0.75 (0.37%)
Electronic Arts Inc. (NASDAQ: EA) 115.84 USD −1.06 (0.91%)
The worst seems to have passed, but it’s not clear the best is arriving any time soon.