We are now in a world in which the stock market good seems to be bad and bad seems to be good. Let me explain. It appears that when we see better news on the economy, we see a negative reaction from the markets and equally the other way around. Why? Perversely, a string of better economic news means that there is less likely to be further government financial support. This has been vital for supporting the system and alleviating some of the worst effects of the damage. Whereas any negative economic news will only further increase the need for more direct monetary interventions, and thus the markets love the prospect of a further injection of financial opium.
This is not a very healthy position to be in and certainly not very helpful for investors.
It is also that time of year to complete the old stock exchange rhyme of ‘sell in May’. The old idea was that all good city people will be off for the ‘summer season’ and so trading volumes would decline, support levels would weaken, and stock markets would fall. Of course, that is all hogwash, and if it did happen it would be only be coincidence. For a start, there is (sad to say) barely an old summer season any longer. Gone are the days when hampers were packed, Veuve Cliquot chilled and everyone trooped off to Henley, Cowes, Wimbledon, Ascot and Lords. And then this was followed by a few weeks on the Cote d’Azur. It must have been hell, but someone had to go.
This year of course, we barely had any sporting events and travel restrictions meant that we would probably only be going to the Cote Torquay.
The other half of the rhyme you will no doubt recall was ‘and don’t come back until St Leger Day’ which is normally in the second week of September. That race (The St Leger) is run at Doncaster. But that trading idea will have been a waste of time in the UK and will have cost you not just in trading costs (including spreads) but also by losing out on those rather essential and valuable long-term dividend payments. However, if you had obeyed this silly rule in the US you would have been really furious, as you would have missed out on a 25% gain on the NASDAQ market, even taking into account recent falls. Again, it does seem perverse that in the midst of a global pandemic, recessions in most leading nations and rising tensions of global trade disputes, that stock markets have seemed to shrug such worries off. Or have they? Perhaps they are just deluded. Efficient markets are supposed to act as a discounter for future value. However, with the real effects of the economic coronary yet to be felt, this market cannot see weeks, let alone months into the future. Extensive governmental support packages both in Europe and the US are masking the real damage with furloughing, grants and loans providing the monetary dopamine and blurring reality. Employment levels will eventually adjust quite significantly lower in a damaged and changed world as we try to come off the drugs. That does not, however, mean that all companies will suffer, and as we have seen with technology stocks, certain areas are positively benefitting. But future earnings expectations for many companies will have to be reset and with it their prices. So, perversely, national economies and stock markets often do not operate in tandem - and as we have seen recently, sometimes behave in diametrically the opposite manner. And finally... The need for proper social distancing discipline. While we are all still trying to understand the social distancing rules in our restaurants and pubs, news comes in that a couple have been barred for inappropriate social behaviour from a gastro pub called The Mill, in Ulverston, Cumbria. Their offence was apparently having a bondage session on the terrace in full view of other diners. On a recent Sunday evening, one partner acted as the ‘dominatrix’ and tied her ‘slave’ to a roof beam with a dog lead. Then she began spanking him with a paddle. Eyewitnesses say the slapping sound could be heard above the soundtrack of Lovely Day by Bill Withers. No doubt it was for them, but probably somewhat off putting for their diners having their pulled pork and French fries. That said, perhaps this is in fact the sort of effective discipline that Matt Hancock, the current Secretary of State for Health and Care, wishes to see, to help us control any further spreading of the virus...