Market to Turn its Attention back to the Economy

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by Jean Josse

On March 23rd in the darkest moments of the pandemic, I wrote an article called ‘light at the end of the corona virus tunnel’ in which I strongly believed that the market, after a bruising 34% decline in only a matter of weeks, had reached a bottom and it was time to begin buying stocks again.  Since that day, the market has furiously rallied 30%.  I believe we will now begin another leg down as market participants begin discounting the apocalyptic drop in economic output currently underway.

In my last article, I believed that the market would anticipate a flattening of the curve for Covid19 coupled with massive Federal Reserve and fiscal stimulus.  These two combined phenomena led to a violent rally in a very short amount of time.  Furthermore, investor sentiment had reached extremely bearish levels leading to “washout” price action in the later part of March.  Presently, I believe the market will turn its attention to what the economy is actually doing and even the most optimistic of investors will admit that it will be sometime before economic activity gets anywhere near where we were pre Covid19.

The most likely path over the next several weeks is a downtrend toward the March lows, although I believe the probability is fairly high that we will NOT break the lows.   The worst of Coronavirus is largely behind us and the Federal Reserve has made it very clear that they will do whatever it takes to keep liquidity flowing through the markets.

I am advising investors to take advantage of this rally to raise cash and wait for better opportunities ahead.  At GlassBead, my investment firm, we were aggressive sellers late last week.

I will provide another update once I feel the next leg down is complete.

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