What next for this market?

[zico]

Well, yet more lousy short-term timing from me as the US market has jumped over 2% since opening today, on the favourable trial results from Gilead's remdesivir drug. Having read more detail on this (out of general interest rather than stock-market research) I think the US market may be grasping at straws to be optimistic, but well aware it could be me grasping at straws to justify my thinking about the market direction!

I've put a link on the science board for anyone interested in more details about Gilead's trial results. As a side-issue, who names their firm Gilead, as in the Handmaid's Tale?

viewtopic.php?f=83&t=22737&p=304238#p304238

[GoSeigen]

This pandemic was caused by people eating wild animals which probably occurs in every country. Grouse, deer, pheasant and most of our other diseases have crossed over from domesticated animals, there is no one to blame!

Hungry coolies? Let them eat cake!


Absolutely agree colin. This could have happened anywhere, especially in territories which are home to 20% of the world's population.

Some of us are not swallowing the Fox/Murdoch line of propaganda. I suppose it makes a change from demonising Africans for originating Ebola and AIDS...



GS

[colin]

This pandemic was caused by people eating wild animals which probably occurs in every country. Grouse, deer, pheasant and most of our other diseases have crossed over from domesticated animals, there is no one to blame!

So if you got food poisoning after visiting a restaurant and eating chicken you would shrug and say 'all restaurants serve chicken so it's not that restaurants fault' and continue going to said restaurant?

It's not just about eating wild animals, it's the whole process of how they are prepared, purchased and cooked. Sorry, but we've now had both SARS and Covid originating from the same country and likely from the same culinary practices. And to repeat, it's not really about blame, it's about finding out exactly what happened and why and then putting measures in place to prevent it happening again. Measures that should have been put in place and enforced after SARS.

Yes obviously food hygiene is an important issue but why do you believe that bad food hygiene in China will prevent the stock market rising?

[Bubblesofearth]

Yes obviously food hygiene is an important issue but why do you believe that bad food hygiene in China will prevent the stock market rising?

Worsening of trade relations is the most obvious link.

BoE

[EthicsGradient]

No idea what happens next. "next" to me seems to be a very short timeframe, and that's no better than a coin toss to me in predicting direction.

However I take comfort again by the general negativity of responders here, most displaying bearish sentiment. Given markets are psychological, perhaps more so than fundamental in the short term, layered onto a random walk in terms of direction, the bearish sentiment makes me inclined to be bullish.

You really shouldn't assume that a few self-selected posters, on a forum whose name comes from an idea that "conventional wisdom" is unreliable. are an accurate sampling of "market sentiment". You'd be better just looking at a current index value and its change from the day before. Judging "the market" from posts on The Lemon Fool would probably be significantly worse than a coin toss.

[tjh290633]

We haven't yet had a proper double bottom. That would be a sign of things to come.

TJH

[Bubblesofearth]

We haven't yet had a proper double bottom. That would be a sign of things to come.

TJH

Nor have I seen a narrow, or 'pinched' bottom and a rounded double top.

Not for a while anyway.

BoE

[colin]

Yes obviously food hygiene is an important issue but why do you believe that bad food hygiene in China will prevent the stock market rising?

Worsening of trade relations is the most obvious link.

BoE

Ah I see! And how does that inform your investment decisions?

[Bubblesofearth]

Ah I see! And how does that inform your investment decisions?

I explained that in my earlier post concerning negative factors to consider when trying to decide what is next for the market.

Are we going round in circles here or have you not read the earlier posts?

BoE

[colin]

Ah I see! And how does that inform your investment decisions?

I explained that in my earlier post concerning negative factors to consider when trying to decide what is next for the market.

Are we going round in circles here or have you not read the earlier posts?

BoE

So you believe what exactly? That stock markets will fall over the next few weeks because of trade tensions with China and that is why you are out of the market? Stop being so vague.

[Bubblesofearth]

So you believe what exactly? That stock markets will fall over the next few weeks because of trade tensions with China and that is why you are out of the market? Stop being so vague.

Where did I say I was out of the market? I explained my feelings about the market in this previous post;

viewtopic.php?p=304056#p304056

In that post I said;

1. The market was probably close to the bottom when it dipped below 5000 a while back. I posted back then that I believed that to be the case.

2. The market's subsequent 1000+ point rise was difficult to explain given little change in Covid uncertainty.

3. I believe that trade relations will be strained post-virus and this could be a significant negative for markets.

4. I would probably do nothing myself regarding my investment position.

Since that post, as of this morning the market has retraced 400pts. This feels about right given all the information available just now.

I can add to that that I have done very little this year. I have an asset allocation that I am comfortable with, about 75% equities/25% cash. The cash is in NS&I linkers so I'm relaxed about inflation. The only small change is the purchase of a small number of shares in RB. This was from dividend build up. I highlighted the attraction of RB. back here;

viewtopic.php?p=287050#p287050

If that is all still a bit vague then good as IMO the worst thing any investor can do is believe too strongly in their convictions, especially if that leads to dodgy investment decisions. By dodgy I mostly mean moving away from sensible asset allocation and diversification strategies. Any uncertainty is also partly a consequence of my science background. Despite popular opinion to the contrary, scientists don't usually deal with definites but rather with probabilities.

BoE

[hiriskpaul]

I haven't a clue what is going to happen and consider anyone who does as delusional. As to why markets are not lower, again nobody knows, but tikunetih lays out some good reasons why the collapse in long bond yields is supportive. In short, the collapse in yields makes forward stock earnings more attractive, even if the market has marked down the nominal value of those forward earnings.

My portfolio is roughly divided into 25% global equities (mostly trackers), 50% fixed income (mostly high yield) and 25% cash which I deploy speculatively for short term gain as opportunities arise. In mid March I brought the equities fully up to weight and have been adding to HY FI. So far the outcome is mixed, with some good gains balanced by a few painful losses (badly timed oil company bonds). I am now as fully invested as I want to be and await the outcome. Cash regularly comes in from the FI portfolio though and I have a significant redemption early July (Balfour Beatty prefs). I am not intending to do any more before then.

I hold a long duration US Treasuries ETF in my SIPP which has done very well, the only thing that has. I was considering selling it, but decided to hold in the end as US long bond yields are still quite some way above other government bonds.

[colin]

We haven't yet had a proper double bottom. That would be a sign of things to come.

TJH

Nor have I seen a narrow, or 'pinched' bottom and a rounded double top.

Not for a while anyway.

BoE

That sounds nice , does it come with strawberry sauce and crushed nuts?

[zico]

This market is particularly irrational, with big falls the day after probably the best news yet on the coronavirus crisis, which was that people previously thought to have been re-infected in South Korea were actually false positives.

[tikunetih]

It's important not to lose sight of the fact that assets and asset classes are all in a "beauty parade" vying for the attention of investors. It's a relative game, so in a parade of ugly ducklings, the objective is still to identify those that are more attractive than the alternatives, even if the absolute levels of attraction aren't great.

...

Do I think that's likely? No of course not. But, it is possible (not a forecast, just a possibility) that investors do begin to come to believe more than they did previously that the low interest rates that we've experienced for the past decade, and the even lower rates we now have, could/will become a feature for the foreseeable future. Central banks may encourage them to think that way, as they have done in Japan, by if necessary specifically anchoring gov bond yields at low target levels until some future, desirable, but distant economic condition is attained.

In that scenario, valuation multiples could expand (very) significantly, and it's not hard to imagine how they could potentially even one day come to exceed the all-time high multiples seen at the height of the dotcom bubble. Earnings falling, equities rising; earnings levelling, equities rising; earnings eventually recovering, equities rising more - all possible if investors vote that way by ascribing higher valuation multiples because they decide the other ducklings in the beauty contest are even uglier.

Back in late March the Fed telegraphed to investors that they should prefer risk assets to safe assets. With yesterday's announcement re their policy shift to inflation they are doubling down on their message to own risk assets and inflation-protecting assets, and to avoid cash and safe assets.

US markets look fairly stretched, and market breadth has deteriorated in the past couple of weeks with the recent rises being driven by a narrow group of stocks, so despite the message in the above paragraph a near-term correction wouldn't be a surprise.

But.... if such a correction materialises I would expect it to be bought into heavily by those who are currently underweight stocks, and that as a result the SPX has every chance of knocking on the door of the 4000 level in the intermediate-term - or sooner.

Note Riverfront's three tactical rules: "Don't Fight the Fed", "Don't Fight the Trend", but "Beware the Crowd at Extremes", which are an excellent framework for active, tactical investors.

While many equity valuations may not be especially attractive presently, this does not feel like a true "extreme" to someone who's been active in markets for several decades and observed the real madness that occurs when everyone is directionally aligned and the last bears have been slaughtered. Hence, barring major *new* exogenous shocks, I'd expect this bull market to continue, with the right tactic being to buy pullbacks.

Let's see!