The Dow Jones Industrial Average (DJIA) continues to baffle many investors and analysts alike with its apparent decoupling from the American Economy. Off its March lows of mid 18,000 level. It stands pushing once again above the 26,000 mark. Its post CoVid correction high was a hair above 27,200 June 8th. Technology shares represent a good amount of the gains with the tech heavy Nasdaq (QQQ) already above it’s all-time highs. Yes, you read that right. The Nasdaq is already higher than it was pre CoVid. Analysts attribute this index’s stunning move to the heavy make-up of the many technology companies in it.
Meanwhile the unemployment level sits at around 50 million and with the threat of new economic shutdowns in many states due to the increase in CoVid cases and the unemployment special $600 a week bonus set to end in a few weeks, many analysts are warning the stunning ascent in the stock market may be in jeopardy. Big and small businesses alike are reeling from the shutdowns with many forecasted to never return. The balance sheet damage is that bad.
Making matters worse, the tension among Americans is palatable. Racial issues, the mask debate, the very controversial upcoming Presidential elections and continuing economic inequality is adding even more stress to a populace that is probably wondering what else could go wrong.
The reasons for the recent surge of CoVid is also being hotly debated turning up the heat even farther. Some claim the mass gatherings of protestors is to blame while others blame a premature opening of shutdown restrictions helped spread the virus. Citizens are taking what seems to be extreme polar opposite positions on the mask- no mask debate, with many blaming the “anti-maskers” are at fault for the recent spread while that group insists not wearing them is an essential freedom.
In the markets, gold is reacting by assaulting a multiyear high. Gold is often bought in times of economic stress and political uncertainty.
In other news, the Trump tax reforms which reduced taxes on various companies and individuals were originally thought to reduce charitable donations due to the rework in the tax law which affected the ability to deduct contributions. Not so says Giving USA in a report that claimed Americans contributed a record 450 billion to charitable organizations last year.
Way to go America.
Economic recovery forecasters run the gamut in their prognostications of just how long we will have to wait to see things return to some semblance of normalcy. Jim Rickards of the “5” Minute Forecaster reports recent statistics bring 2023 into hopeful focus while worst case scenarios (which might get worse still should CoVid stubbornly hang around longer than expected) puts the recovery well into 2025.
Giddy investors meanwhile are coming out of the woodwork to bid up the share prices of bankrupt company stocks, and yes, public companies stock can continue to trade while the bankruptcy makes its way through the court system. The day trader has also returned in healthy numbers, usually leaning into not only the bankrupt companies in search of quick profits, but buying up the most badly beaten down stocks. These are the companies that were most affected by CoVid, such as cruise lines, airlines, restaurants and the hotel/motel chains. Fast profits and portfolio implosions usually go back and forth for such novice traders.
Despite the market’s historic and head scratching run, a record amount of cash sits in investor broker accounts says Zach Scheidt of the “5”. He goes on to give his opinion that this is the reason he believes the markets will run higher. Cash seeks a place to go, or better said, has a tendency to burn holes in investors pockets. If markets continue to run, investors may have the itch to put large amounts of cash to work as the greed DNA twists and turns in anticipation of higher markets.
All in all, it’s been quite a period for the markets and indeed most every person on the planet as a result of the Corona virus event. Where we go from here is anyone’s guess.
This article expresses the opinions of Marc Cuniberti and should not be construed as individual investment advice. No one can predict market movements. Investing involves risk. You can lose money. Mr. Cuniberti is an investment advisor representative through Cambridge Investor Research Advisors Inc. a registered investment advisor. California insurance license 0L34249