Stock market doesn’t care much about corona fear
New record
Last week, the world’s most important stock index, the S&P 500, briefly touched its highest point ever. In the end, the index stuck just below it. This while the Nasdaq, for example, thanks to the many technology funds in this index, has long since surpassed the old top. Since this early spring, the stock exchanges have therefore largely or even completely recovered from the historical drop. A recovery that many experts observe with increasing astonishment.
Disconnected from the economy
After all, isn’t it true that the United States has a record number of unemployed, economic growth has not collapsed historically, the number of virus infections continues to rise and shares have not reached a valuation that we haven’t seen since the infamous dot-com bubble? It’s been singing around for a long time, the financial markets have become disconnected from the underlying economic fundamentals. Sooner or later, a huge blow will have to follow. Especially many new inexperienced investors seem to walk straight into the trap of an overvalued stock exchange with all the nasty consequences that entails.
Hard figures for nuance
But some nuance might be appropriate. Of course, shares seem historically expensive and with a possible flare-up the second wave of the virus seems little imagination needed to foresee hot autumn on the stock market. After all, aren’t the historically inferior months of September and October coming? In this context, it might be a good idea to bring in some hard figures that seem to speak a different language against all these predominantly gloomy sentiments.
Earnings results are not so bad
As a result, the flow of quarterly reports from the companies is coming to an end. In the United States, 83 percent of the companies in the S&P 500 have exceeded their profit expectations after all. And more importantly, 64 percent of the companies reported higher than expected sales. Of course, expectations were certainly not on the high side in connection with the corona crisis. At the start of the season, however, profits were still expected to drop by more than 43 percent, but so far this has not been as much as expected, with a drop of 33 percent. Another remarkable fact was that it was not the leading technology funds, but the industrial companies — naturally more sensitive to the economic cycle — that came out on top.
Interest curve
Not only were the operating results disappointing, but there was also some relaxation on the bond market. In the United States, for instance, interest rates on long-term government bonds rose for the first time in ages. This resulted in a rising interest rate curve. A sign that the more professional bond market is also experiencing a — at least small — economic recovery. Lately, it has become fashionable to worry about rising inflation. Especially in view of the enormous amounts of money that have been squeezed in the last couple of months. Despite the somewhat rising inflation, however, it is still clearly below the target of the central bank. Especially considering the fact that the US government has raised a record amount of money to be able to cover the sharp rise in deficits. Moreover, remember that real interest rates in the United States are still clearly negative.
Economic figures are not disappointing
The falling dollar would be a problem. Would it? For the American economy, a weaker dollar seems like a blessing. And also a sign that the stress on the markets has subsided. After all, doesn’t the dollar usually increase in value when the stock market gets tense? Another concern was the “disappointing” retail sales. When the automotive and petrol sectors are left out of these figures, however, that is not so bad. The Citi Economic Surprise Index, which measures macro-economic figures against expectations, also turned out to be vertical in recent months. Up, that is.
The sentiment of investors not so euphoric
And last-but-not-least, investor sentiment appears to be far from as furiously optimistic as is often assumed in the media. Only 30 percent of investors appear to be optimistic, historically far below what would be normal for a stock market that is “high”. On the other hand, the number of gloomy-minded investors is remarkably high given the stock market’s state of affairs. On the contrary, the Yale Crash Confidence index indicates a widely shared expectation among investors that they are warier of a crash than ever before. Something that puts the stories of the Robinhood Day Traders — a category of new investors who are not hindered by any knowledge of their savings into the stock market — into perspective. In other words, equities are historically expensive, yes. However, interest rates are historically low and the economic figures relativise the widely shared economic gloom among many experts. Perhaps 2020 has even more surprises in store for investors. And this time a little less gloomy.
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