Weekly Roundup, 1st June 2020

Weekly Roundup, 1st June 2020

We begin today’s Weekly Roundup with another look at whether current market levels are justified.

Market levels

John Authers

John Authers

In his Bloomberg newsletter, John Authers said that stocks have reached a tipping point.

  • He’s referring to the tension between the attempts to re-open the US economy and the US-China beef.

In the three days since he wrote the article, we could also add riots across America, but this morning the markets remain positive.

Fastest recovery

Fastest recovery

He notes that this is the fastest recovery ever.

  • 90% of S&P 500 stocks are now above their 50-day MA, which usually means there are more gains to come (positive on 15 out of 16 previous occasions after a further 12 months).

Expensive stocks

Expensive stocks

Based on prospective earnings, stocks haven’t been so expensive for 20 years (back to the dot com boom).

Dumb money

Dumb money

Citgroup has said that the rebound comes against terrible cumulative inflows to equity funds, but then retail money has been dumb for decades.

Short covering

Short covering

Their suggestion that the rally has been largely driven by short-covering is more worrying, but at least the shorts are themselves worried enough to cover.

Panic and Euphoria

Panic and Euphoria

The third chart from Citi is the scariest – we have left the panic of March far behind and are now back in euphoria.

David Stevenson

David Stevenson

On his Adventurous Investor blog, David Stevenson looked at a paper from MSCI and noted that investors are pricing in a V-shaped recovery which seems unlikely to materialise.

Recovery shapes

Recovery shapes

On ETF Stream, they made the argument that there is no V-shaped bubble and that rather, stocks are fairly priced:

  1. The S&P 500 is stuffed with low cost-of-capital tech companies who will benefit from Covid- driven increased internet use.
  2. And with healthcare and biotech firms which are making more money than ever.
  3. High 2009 PE

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.