WASHINGTON – On the heels of another hideous, Covid-19-driven hike in America's rising unemployment rate, stocks rallied fiercely across the boards on Friday. Why? A story hit the wires early, describing how an existing drug essentially cured a small but significant number of Chicago area coronavirus sufferers. Forget the day’s weekly unemployment news. The Friday rally was on, courtesy of that alleged Covid-19 cure.
As I noted earlier this week, it’s been tough to write articles on the current wild trading action in the US stock market. And in international markets, too, for that matter. Take Friday’s hyper-bullish trading action as just the latest example.
Forget unemployment. Friday’s bull invasion
After stocks shrugged off the massive increase in America’s unemployment numbers, they fixated on that reported Covid-19 cure. Instantly, stocks blasted into irrational exuberance mode. What unemployment?
By Friday’s closing bell, the Dow Jones Industrials (DJI) closed at 24242.49, up 704.81 points on the day for a 3% gain. In one trading day. The broader based S&P 500 closed at 2874.56, up 75.01 points for a slightly less impressive 2.68% gain. For once, the feisty, tech-heavy NASDAQ brought up the rear. It closed at 8650.14, tacking on 117.78 points on the day for a 1.38% gain. Pretty exciting for a Friday, particularly when you consider it was also options expiration day. The hugely machine-driven action on such days can heavily influence the direction of stocks. And hence, our massive Friday rally.
The Rise of the Machines
Primarily headline-driven as opposed to analytically-driven since the darkest days of the Great Recession, today’s markets are dominated by high-speed computers programmed to trade within nanoseconds on the latest hot headlines rather than profit and loss or movements in historical charts. It’s insane for a variety of reasons. But that’s a digression (and a few rants) best discussed in another article.
CNBC provided some telling details on Friday’s headline-driven rush to invest. Here are a few snippets from that piece.
“Stocks surged after a report said a Gilead Sciences [trading symbol: GILD] drug showed some effectiveness in treating the coronavirus, giving investors some hope there could be a treatment solution that helps the country reopen faster from the widespread shutdowns that have plunged the economy into a recession…”
About that balm from Gilead…
“Gilead shares jumped more than 7% after STAT news reported that a Chicago hospital treating coronavirus patients with remdesivir in a trial were recovering rapidly from severe symptoms. The publication cited a video it obtained where the trial results were discussed.
“‘An effective treatment is a huge deal and would create a path to open the economy and resume normal 'social activities' way sooner than a vaccine,’ said Tom Lee, head of research at Fundstrat Global Advisors. ‘A treatment is safer and more scalable because it is only given to people who need to be treated.’
But another investing pro raised the caution flag on both the potential Covid-19 remedy and an irrationally exuberant market.
“‘It's far too early to signal the all clear, but what this demonstrates is that coronavirus is a health problem that requires a health solution,’ said Michael Arone, chief investment strategist at State Street Global Advisors, about the prospects of a coronavirus treatment. ‘If we can develop a health solution, I think at least from a market perspective, things will rebound pretty quickly.'"
Look at the magnitude of recent Wall Street gains
“Friday's gain put the S&P 500 on track for its first back-to-back weekly gains since early February. The S&P 500 has risen 1.9%, while the Nasdaq has climbed 5%, lifted by double-digit gains in Amazon and Netflix. The 30-stock Dow was up about 0.9% this week," the CNBC report continued.
Hooray for Boeing
Plus, there was further icing on the Friday rally cake, as nearly destroyed DJI stalwart Boeing (BA) finally got some good news to offset its ongoing 737 MAX disaster.
“Boeing shares jumped 14% after the airplane maker said it would resume production in the Seattle area as early as April 20. The company also said Friday it would resume operations in the Philadelphia area.
“A jump in Boeing shares and a roll-out Thursday evening of the White House plan to reopen the economy also added to the bullish tone on Friday. New York Gov. Andrew Cuomo also said hospitalizations in the state have fallen.”
I’ve read other reports that Boeing would be resuming operations in the Seattle area, not Philadelphia. But no matter. Any good news is welcome for this badly beaten-down stock. And for its currently unemployed workforce. So whatever happened to those shocking unemployment headlines anyway?
Fake news or real news?
Both online and dead-tree news headlines plus cable TV’s endlessly negative talking heads keep telling us that President Trump is a chump, that Nancy Pelosi – House Speaker and Empress of Ice Cream – is a genius. And that we’re all going to die – soon – anyway.
But at the same time, at least for now, Mr Market and that wild Friday rally seem to be telling us that we’re about to put Covid-19 in the rear view mirror and return to prosperity. Even better, we’re all about to get our jobs back, and the world will be wonderful but perhaps very different by 2021. At least as far as Mr Market is concerned. But can we believe this?
Is Mr Market predicting the near future?
Mr Market tends to have a decent historical track record for predicting the near future. The lead-time for such predictions to come true tends to be approximately 6 months. Which means both we, unemployment numbers and corporate earnings may have a rough few months ahead. But we’ll be back to some kind of happy “new normal” by the holiday shopping season later this year. At least according to this week's market action, topped off by the Friday rally.
Oh, and also, Mr Market seems to be saying that President Trump is, naysayers to the contrary, very likely to be re-elected this November, Covic-19 crisis aside. And markets do love continuity, particularly if they’re used to making money under the current White House occupant. Which we were. At least until we involuntarily imported that nasty new Chinese import from Wuhan.
Bottom line
Who knows what Wall Street will dish out for us this coming Monday, Covid-19 or otherwise? I sure don’t. And none of those TV talking heads do either, although their hubris prevents them from acknowledging this in public.
But in general, I’ve been replacing a number of stocks I felt forced to shed from my portfolio during the early days of 2020’s Covid-19 inspired market crash. Plus, I’ve been adding – as reported earlier, by ones, twos and occasionally fives – shares of other promising issues.
The idea – if it works – is to ride the early, huge recovery wave that often occurs after a crash. If your stomach can stand the tension, it’s often the best way to get back – fast – a chunk of your recent, unpleasant losses.
Caution flag
But you still need to remain cautious if you employ this strategy. That’s because stocks often find an excuse to form a “double-bottom” – i.e., crash a second time – before they begin to rally in earnest.
I’ll try to crank out a second article this weekend on further portfolio moves I’ve been making in hopes of getting back the rest of the $$ my portfolios lost in March. No recommendations here, as always. Just real life examples. (Mine.)
Rule of thumb: Never fully believe any investment columnist or talking head – including yours truly – without conducting your own follow-up research. Whether it’s money or health issues, second and even third opinions are always an excellent idea.
*– Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Legal Insurrection.*
