Are we in a bear market yes or no? I haven't the slightest idea.
Is this the largest single shock to the economy in our lifetimes? Without a doubt. To put this into context, here is a chart of Weekly Initial Jobless Claims going back to the 60's.
Touch difficult to digest. 26.4 million initial jobless claims have been filed in the last 5 weeks alone. That is just over 70% of all the claims reported during the GFC. The GFC lasted roughly 18 months from peak to trough claims. This is in 5 damn weeks. From an unemployment perspective, we have reached the "Oh shit" moment. The market has an altogether different view. While the real economy data gets worse and worse, the market looks forward to determine whether or not we will recover. Hence the discount mechanism. This little doozy was from a couple weeks ago and the exact reason why I stopped watching cnbc.
Pure genius.
At current levels, the market is discounting not only a "V" recovery, but the second arm of the V to exceed economic growth levels preceding the virus. Sure anything is possible. However a small test of your close friends and family will probably give you a better picture of the truth. Putting your personal view on the virus aside, we can all admit that our spending patterns have changed quite a bit. Perhaps for the long run. Our family of 4 was more than happy to head out to eat/drink multiple times a week without much thought. Over the last 5 weeks that has changed quite a bit. Our current credit card bills if nothing else are all the reason to abandon eating out, or at the very least eating out multiple times a week. But, my main issue is this will change behavior. I personally will be in no rush to go get a haircut, head to a sporting event, attend a concert, etc...Quite frankly sporting events and concerts for our family may be a thing of the past. Call it what you want, Fear-mongering, paranoid, delusional. I call it I had the flu a few years ago and that sucked. I don't want it again. Oh yeah, I also don't want to fucking die.
The mental shift is real. The economic reality for majority of Americans will not dissipate with the virus. However the market has looked past all of this. Credit Suisse chart below shows that the PE multiple on the broader market has now past the previous all-time high set in February registering 19.4x. To put it simply, at the time of this writing the market has never been more overvalued than it is right now.
Actually according to the next chart from Bank of America, we are at all-time highs on almost all valuation metrics except for 3.
Not exactly a place I feel comfortable being on the risk curve.
Here is the current Fibonacci retracement for the SPX. We have officially retraced 50% of the March swoon. 61.8% gets us back to 2930. Our friends over on the Nasdaq Composite actually went green for the year. Is this the beginning of another all-time high?
In my humble opinion, this is a classic rip-your-face-off bear market rally. Get everyone right back into the boat. After all, fear of missing out is real and the market. In Jean-Paul Rodrigue's classic chart on bubbles, we are firmly back in the Return to "normal" phase.
Something that we saw the last time we had economic numbers this bad during the depression.
Also in these reddit charts from 2000-2003 and 2008 cycles
I hear more and more "Don't Fight the Fed" quotes from people who have no clue what they are doing. Seeing more articles like this, https://finance.yahoo.com/news/federal-reserve-just-saved-the-stock-market-from-the-worst-of-the-coronavirus-pandemic-it-may-be-time-to-invest-again-162845470.html. And this, https://www.marketwatch.com/story/wall-street-analyst-who-called-the-2018-rout-says-dont-fight-the-fed-and-buy-the-dips-is-back-on-in-this-coronavirus-stricken-stock-market-2020-04-13.
One can be sure, the market is never wrong. Price action is never wrong. The market will ultimately be driven by the path that will fuck the most people at the most time. I am positioned for this as a bear market rally, but am cognizant of the Fed liquidity engine and the belief that the Fed will not let this market drop. From an economic perspective I am more than ok missing fresh all-time highs. Better ways to make money. I am short with a tight spot, Initial target is to retest the March 23 low, stopping out if break through that 61.8% Fibonacci retracement.