Faith in the V-shaped recovery takes a hit3 min read . Updated: 26 Jun 2020, 05:14 PM IST
- Data continue to show a rapid economic recovery isn’t likely
Investors betting on a V-shaped recovery got some bad news this week.
First, the number of new coronavirus infections is rising across the country, forcing some states to ease their reopening plans. For investors just hoping things get back to normal, this is a major roadblock.
Then, the data continue to show that a rapid economic recovery isn’t likely. Initial weekly jobless claims came in at 1.48 million, the 14th consecutive week above 1 million. Continuing claims fell to 19.5 million from 20.3 million, which is cold comfort.
The buy-everything crowd was knocked off kilter. The Dow Jones Industrial Average was down 0.5% on the week through Thursday, and the S&P 500 lost 0.5%. The Nasdaq Composite was up 0.7%.
Let’s look at this week’s winners and losers.
The WSJ Dollar Index has risen in eight of the past 11 sessions, benefiting from investors who weren’t all in on the recovery as well as those who suddenly decided that their bullishness could use a hedge. On Wednesday, the index rose 0.6%, its best day in about two weeks, as the stock market deflated.
Among the caution crowd are companies. At the end of the first quarter, S&P 500 companies had a collective $1.68 trillion in cash on hand, according to S&P Dow Jones Indices. That number likely changed in the second quarter, but not by much.
Cash levels are expected to decline somewhat as companies burn through that money to offset revenue lost because of the pandemic, but they are compensating for that by bringing in new cash through debt offerings and financing, and, of course, suspending buybacks.
Also among the caution crowd are investors. Assets in money-market funds rose recently to a record $4.6 trillion.
Somewhere out there, you just know there are investors who finally abandoned their caution this week and started buying stocks.
Oops. On Wednesday, the three major indexes all fell more than 2%. The Nasdaq snapped an eight-session winning streak; the Dow has been down four of the past seven sessions.
That selloff came just as the bandwagon was getting crowded. The Investors Intelligence survey of bullish sentiment, which canvasses professional investment advisers, stood at 57.3% for the week that ended June 24—almost back to the survey’s January levels.
Any reading above 55%, the firm said, is a “danger zone" that calls for defensive measures.
Given that, the selloff this week wasn’t very surprising. The market has a tendency to wobble when too many players crowd on to one side of the trade.
Just because this week burned the latest bulls to join the party, though, it doesn’t mean there aren’t any bulls left. Another survey, from the American Association of Individual Investors, had bullish sentiment at just 24% this week, well below its historical average of 38%.
You could see Thursday that the bulls were far from conceding: The Dow opened down more than 200 points and was in the green before brunch.
Believe it or not, the second quarter still hasn’t ended. It will, thankfully, on Tuesday. A new month usually brings the nonfarm payrolls report on the first Friday, but because of the Independence Day holiday, the June jobs report is being released Thursday instead—at the same time as the weekly jobless claims, incidentally.
In May, the official unemployment rate stood at 13.3%. Even the Bureau of Labor Statistics has said that its numbers may understate the true level of unemployment. It will be important to look at the revisions to April’s and May’s reports.
Also, look at what is called the U-6 rate of unemployment, which is a broader gauge of unemployment. It stood at 21.2% in May.
This story has been published from a wire agency feed without modifications to the text.