FT: Investors baffled by soaring stocks in ‘monster’ depression

www.ft.com/content/10d24f35-dee9-4991-a7bd-51be9097a100

While the headline is somewhat exaggerated, the premise is correct.

Here the whole article: The divergence between the flying stock market and the dying economy is so extreme it is leaving many analysts scrambling for explanations.

The recent string of economic data releases reflecting life under global coronavirus lockdowns has been even grimmer than expected, spurring the IMF this week to forecast the biggest global recession since the 1930s’ Great Depression.

Some investors are in awe at the scale of the shock. “We really are in uncharted territory,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “We have a monster mash-up of the Great Depression in size, the crash of 1987 in speed, and 9-11 attack in terms of fear.”

And yet, stock markets have been on a tear for a month. What was once dismissed as a mere “bear market rally” often strong but ultimately doomed bounces that can occur in the middle of severe downturns – has now turned into a 23 per cent jump for global stocks. Technically, that qualifies as a new bull market.

The rise has erased half the stock market fall since late February, and brought the FTSE All-World index back to levels seen in the US tax cut-fuelled summer rally of 2017. Analysts and investors say that global efforts by central banks to soothe the financial system have been the trigger.

Citigroup estimates that the biggest central banks will buy $5tn of bonds this year, led by the US Federal Reserve, which is more than twice the size of the stimulus seen at the peak of the 2008-09 financial crisis. The Fed has even charged into areas once thought untouchable for central banks, announcing plans to support corporate debt graded “junk” by credit rating agencies.

Throw in various other liquidity injections and a series of government spending packages aimed at ameliorating the effects of measures taken to contain the coronavirus outbreak, and the overall stimulus bill comes to $14th, according to the IMF.

“The Fed has been very clear that it will do whatever it takes,” said Joyce Chang, chair of global research at JPMorgan. “The question is whether this will be enough.”

Many investors seem to think so. Technology stocks are once again leading the rally, but even travel and leisure stocks have jumped 24 per cent from the lows, trimming their decline this year to 37 per cent.

Investors appear to be writing off 2020, focusing instead on the prospects for an economic normalisation in 2021, analysts say.

Some of the technical forces that fuelled the sell-off are also helping stoke the comeback. Hedging by banks, trading strategies that automatically buy when volatility simmers down, and thinner liquidity are all now supporting the rally, according to JPMorgan.

 

Carl Icahn isn’t buying stocks right now. He’s hoarding cash, shorting commercial real estate and Says Stocks Are Overvalued, Virus May Cause ‘Downdrafts’

www.bloomberg.com/news/articles/2020-04-25/icahn-says-stocks-are-overvalued-virus-may-cause-downdrafts

  • Billionaire doubts economy can be turned on ‘like a spigot’
  • He’s hoarding cash and keeping a big bet against real estate
  • talks about about tech companies specifically being overvalued
  • said he has a hedge against the S&P500 (puts?)