Stocks continue to rise in the hope that the worst of the Covid-19 is passing and continued Fed’s liquidity support in the most violent correction in stock market history. Two big forces dominate the stock market right now: a bullish uptrend that is creating successive all-time highs and volatility that is nowhere to be seen. According to CDC latest briefing, there are cases of virus reactivation among recovered patients.

David Rosenberg in the Financial Post said that he is sensing that the damage to the U.S. and global economy will be twice as bad this year as it was at the 2008 peak of the Great Recession. My view is that we are still having little clarity over the magnitude and length of this recession, or what the eventual recovery will look like. The buying decision into current market condition is either we are reading this economic compression wrongly or markets are betting on wrong type of recovery ahead!

A Canadian friend sent me this chart yesterday’s night. It shows the decline of Canadian stocks which is very similar pattern for US and global markets. It is more than telling:

A detonation to confidence and spending of this magnitude takes a lot of time and effort to repair. Roughly 6.6 million Americans filed new applications for unemployment benefits in the first week of April. Adding up with numbers in the final two weeks of March, we are staring at more than 16 million applicants for unemployment benefits – this is just a starter. I would rather wait for my recession target to first be achieved even though it could be a lengthy process of testing and retesting, if history is an effective guide on this score. Of course, I am assuming there is a global recession and we are already in the early stages. Companies will be pulling guidance even before the official earnings season starts. My thought process could be wrong if there is a proven vaccine to be administered to people.

I am market neutral now because I am not ready for a rude awakening! Bear markets don’t end when everybody’s looking to buy the dip. If you disagree, please do not hesitate to fire away via my email address below.

Chee Seng, Wong
CIO, Athena Advisors
wong-chee-seng@outlook.com