The Covid-19 hand-wringing is out in force again overnight, with North American markets mostly giving back the previous day’s gains across asset classes. Contrast that with Wednesday, where all was light and sunshine, having endured another end of days Covid-19 session on Tuesday.
As the dust settles on this week, I can’t help but feel a little emotionally exhausted. It is quite difficult telling everybody to calm down, when the world’s assembled financial press and the army of commentators insist on charging between hope and destruction on a rolling one-day basis. It is perhaps symbolic of today’s hyper-connected world, with its instant dissemination of information, short attention spans, and the need to try and analyse to death, every last tick movement for implications that are probably not there.
I will, therefore, unveil a seemingly long-forgotten concept to readers today—the sideways market. Over the course of this week, with a lack of new underlying macro drivers, some markets have gone up a bit, some have gone down a bit. Readers may use the word consolidation if that makes them feel better. With some notable exceptions, that is pretty much how history will describe this week.
Consolidations, of course, are usually sideways price action before significant omni-directional moves. However, consolidations can last quite some time. We’re all going to get very tired, very quickly expending emotional energy seeing conspiracy theories where there are none on a 24-hour rolling basis.
As to which direction equities, that most schizophrenic of financial markets are heading next, I know not. There are plenty of reasons to be bullish stocks and bearish stocks. In the bigger picture, though, one must keep one’s eyes on the prize. The world’s central banks, via bottomless monetary policy easing, have investors backs. The S&P 500 could easily drop 20% from these levels and still be in a bull market. If you are a Fibonacci freak, you would argue that number was 38.2%.
Look at it this way. You are adrift on the ocean in an open-topped lifeboat with only a Peloton Bike and no food or water. As boredom sets in because nothing is happening and you don’t have your phone, you decide to stay fit and bash out a 30-kilometre sprint session with your favourite instructor, Brutus. There are two reasons you shouldn’t do this. One, you don’t have any Wi-Fi, so you can’t connect with Brutus anyway. Secondly, the rescue could be some time away, and you don’t have food or water. Burning up calories and fluids needlessly in this context is, frankly, dumb. You’re going to get skinny and tanned on a diet of hand caught raw fish and unrelenting sun anyway. Push the Peloton over the side and conserve your energy.
That isn’t to say there are no exceptions, and fascinating ones they are as well. Gold has managed to maintain its hold above USD 1800.00 an ounce this week. A weekly close above this level would be a very positive technical development. This isn’t an inflation hedge as so many are proposing, this is a real negative interest rate hedge.
Chinese eyes are smiling on the mainland this week as well. No amount of sanctions noise from Washington DC can keep the Chinese retail investor down, when his or her government effectively spent last Friday and Monday telling you to get limit long now. The leading China exchanges were all sitting on weekly gains of around 10.0% this morning, and Hong Kong has gained 4.50% over the same period. Vietnam, by association, has also quietly gained over 4.0% this week. The rest of the world, though, mostly sits in a 2.0% range either side of zero. Not earth-shaking at all in volatility terms for 2020.
One exciting development I do note overnight is that the S&P 500 and Dow Jones fell overnight, but the Nasdaq rose. Much of the China mainland rally this week has also been concentrated amongst tech companies. The government is promising to spend mega-big in the coming years on the sector. Are tech stocks – including my favourite gangsta rappers, the M-FAANG+ group – the new safe-havens? With their seemingly Covid-19 and economic cycle immune business models. I will ponder this more as I conserve energy over the weekend.
Asia’s session today is a muted one, with Singapore on holiday for its national election. After steady US jobs data overnight, the data calendar today is thin in Asia, and strictly second tier in Europe and the US. That leaves the short-term markets vulnerable to sharp headline-driven moves. Just remember what I said about conserving energy.
