Don’t look now but the 2020 market season is in the final innings. It’s Thanksgiving week and the unofficial start to the Holiday Season.
Will a Santa Claus Rally be in the cards to end 2020?
Well, the crystal ball is pretty dinged up this year, but the signals look positive.
Behind the scenes the BigFoot database has subtly regained a bunch of long positions. It now stands at over 79% long. All the major indexes are long, with only the DJIA showing a wait signal (which will probably flip to buy if the week ends on a positive note).
Signs point to a bet the economy is going to continue to reopen. It’s a risky bet. But the vaccine hopes seem to be outweighing the lock-down fears… for now.
Fear is probably the right acronym for 2020: Future Events Appear Real.
At the start of the pandemic, the concern was that death rates would skyrocket into the millions. Projections suggested as much as 4-to-5% of the population could die (these were the extreme projections of course). The numbers have been sensationalized ever since.
While Covid cases continue to rise, the improvement in medical capacity, therapeutics, and testing have shifted expectations mightily. The markets seem to be doing a good job of looking past some of the hype and digesting the numbers more pragmatically. (Markets themselves are dispassionate; market participants, on the other hand, can be quite opposite.)
Pragmatically, Covid case numbers were expected to rise as testing increased. Also, Covid figures were expected to play a roll in the election cycle. So some of the data was viewed as more sensational than other.
What the markets seem to care most about is whether or not the economy will stay open, whether or not the Fed is going to change course, and
whether or not there will be more stimulus… probably in that order.
So far, the only parts of the economy that are shutting down are the parts that never really re-opened that much… the west coast (where governments are instituting restrictions on gathering for the Holidays). The next few weeks will be telling to see how many people defy these orders.
The key metric seems to be less about Covid cases than hospitalizations. This was, of course, the original concern. It wasn’t going to be “if” you got covid, it was going to be ‘when.’ And policy was designed to “flatten the curve” to keep hospitals from being overwhelmed by covid caseloads.
As holidays undoubtedly lead to increased gatherings, keep an eye on hospital caseloads. That is the gauge most likely to indicate additional shut-downs.
For now, markets seem relatively convinced the caseloads will remain manageable and additional stimulus is on the way. And the markets seem to be looking higher as a result.
For this week, look for a positive trading trend. It’s a shortened week, with markets closed on Thursday for Thanksgiving, and then a half day on Friday. So volume will be lower. And typically market direction gets exaggerated somewhat on lower volume days.
It seems unlikely we’ll post new all-time highs after last week’s marks. But it does appear likely the markets will find a foothold this week and climb back into the upper end of last-week’s trading range. The SPX target for the week appears to be 3640.
It’s the following four weeks that could get exciting. If markets believe in the re-open trade, there could be more rebalancing from big tech into other areas of the markets. This could life indexes like the Russel 2000 in the remaining month. And the S&P 500 could yet surprise… the 3800 target is not off the table by year end.
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