Best quarter, vaccine and US labor market

2 de jul. de 2020

The second quarter for the US stock market was the best over the past few decades. It seems like a more than obvious buy signal. However, we have the opposite opinion. For us this fact is a direct indication to sales.

The problem with modern financial markets is that they have the memory of a goldfish.

Let’s dive into the past a little bit. The high-tech Nasdaq Composite has showed the best results since the fourth quarter of 1999, soaring by 30.6%. Recall that the fourth quarter of 1999 was the last period of growth before the collapse of the dot-com bubble. Right after the fourth quarter of 1999 Nasdaq index fell by 4 (!) times.

And if it seems to you that this is nothing more than a coincidence, then consider the Dow Jones Index, for which the second quarter of 2020 turned out to be the best quarter since the first quarter of 1987. What is 1987 for the US stock market? This is the year of the largest one-day fall in its history. 1987 was the year of the Black Monday, when the Dow Jones Index lost 22.6% in a day, which provoked a severe crisis in the US stock market and around the world too (Australian stock market has lost 41.8% by the end of October, Canada - 22.5% , Hong Kong - 45.8%, Great Britain - 26.4%).

That is why when we see news headlines with phrases such as “the best quarter in decades,” it becomes completely clear that the current bubble has reached the terminal stage.

Another signal in favor of this is Tesla's first place among automobile companies in the world by capitalization. A company that produces dozens of times less cars than Toyota costs more than the latter. The degree of absurdity has clearly reached a critical point. So, stock market sales continue to be the main trading idea of 2020 for us.

By and large, now the whole question is in the trigger. That is, an event that will provoke a change of market sentiments. In general, there are enough reasons, starting from the pandemic and its second wave, ending with the economic crisis. So, today's data on the US labor market, in view of their traditional significance as a whole, are also suitable for the role of a trigger. Although the data most likely will not be disastrous, so we don’t really hope that everything will start today.

We have much more hopes for the earnings season for the second quarter, as well as the US GDP data for the second quarter. So, the ebd of July, in our opinion, can become a turning point for the US stock market.

But back to the statistics on the labor market. In March-April, about 21.5 million in NFP were erased. Yes, May restored 2.5 million, but this is still MINUS 19 million. That is, almost any figure below 5-7 million is, by and large, a negative signal. For example, if the forecasted 3 million will come out. What does it mean? That the labor market will need another 5-6 months (!) to just restore the losses incurred, in fact, during 1 month. This is all you need to know about the quick recovery of the US economy, and in the world as a whole.

As for the rising optimism in the financial markets yesterday, it was triggered by news of a successful vaccine test. This time, the Pfizer and BioNtech vaccine proved to be safe during early trials and ensured the formation of antibodies to the virus. This is not the first surge of optimism against the background of such kind of news. Previously, this was information about the tests of Remdesevir, as well as the results of vaccine tests from Moderna . But the problem is that the pandemic is here and now, and the vaccine is something in the unknown future. That is, here and now this news does not solve anything.