Stocks gave up nearly 1,000 points on the Dow to close in the red yesterday afternoon. This shift lower came as stocks approached a very strong technical point which I don’t believe we will see penetrated in the near term. Of course, I could totally be wrong. However, a break above this level would indicate a technical reversal where stocks go from being in a downward trending cycle to being in an upward trending cycle. Given the dire consequences the Covid-19 restrictions have had on our economy, it seems more likely to me to see stocks suffer vs climb back towards all-time high levels. That would be incredibly irrational. Although stock investors have proven to take the market to levels that are not easily justified, this move would take that irrational exuberance to an entirely new level. Therefore, I anticipate a technical pull-back in the near-term for stocks.
Given the current environment, economic reports measuring the strength of the economy before the Covid-19 shut down are relatively worthless. Since employment reports since the shutdown have all been far more dire than anticipated, all hopes are on US Lawmakers to ensure unemployment benefits are sufficient to keep people’s bills paid and that business owners are provided the economic support to hold on to their employees. Tomorrow we will hear the latest report on Unemployment Claims, which we anticipate will be over estimates high once again. This should cause stocks to pull back even further. We will have to wait and see.
Given that the Fed is controlling the pricing of mortgage bonds, we will maintain a locking bias.