Just a quick note ahead of our Weekly Market Recap on Friday. Please tune in (or watch on demand) to the video presentation on Friday to hear our thoughts on what is ahead for markets.
Today, stocks are building on yesterday’s gains. Yesterday’s gains were dramatic against the backdrop of the prediction that this will be the “worst week for COVID deaths”.
Our thesis has been to expect stocks to “bottom” ahead of COVID “peaking”. We believe the low is in for stocks and that low occurred on March 23. This was the day we saw the Fed go “all in” on monetary policy. They effectively told the bond market that there was no limit on the liquidity they were going to deliver. Additionally, after a false start, Congress promised a fiscal stimulus plan like none we have ever seen.
The old adage “Don’t fight the Fed.” is used when the Federal Reserve changes its posture to either an “easing” or “tightening” posture. This may seem quaint to some given the frequency of Fed actions over recent years. However, when the Fed brings their “big brother” (U.S. Congress) to the “fight”, it makes sense to take them seriously.
When fiscal and monetary policy is brought to bear on a financial crisis, we pay attention. There is a magnifying effect when both are combined which is something we did not see during the Financial Crisis. We expect this effect to be significant to the odds of a substantial recovery for the economy. Effectively, it is the government “blowing air” into our financial lungs as we hold our breath.
As for stocks, the S&P 500 is bumping up against the 2,750 level we identified a couple weeks ago. This level is near the midway point of the February peak and the March low for the Index. So, it is not surprising we have seen a bounce to these levels. We think there is still some room to the upside but it will not last indefinitely. A brief pullback should be expected.
While we do not expect the March low to be breached, we do expect stocks to “feel” like they will. It would not surprise us to see the S&P 500 return to the 2,450-2,500 level before turning higher once again.
For now, we feel comfortable that stocks will grind a bit higher. So, we will use this as another opportunity to scrutinize the holdings in our managed accounts to make sure we are comfortable with them for the post-virus recovery that is coming.
We will have more to share on our Friday webinar, so please tune in.
Kessler Investment Group, LLC