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Investing and trading has always been somewhat speculative, but now it’s feeling more like pulling a handle on a slot machine. It’s all fugazi.
The markets are wholly disconnected from the economy, fundamentals, technical analysis, and reality.
Some say the stock market has been a casino since the massive government intervention and start of quantitative easing during the 2008 financial crisis.
The uncertainty and disconnect have been much more apparent since the arrival of the coronavirus. It started with limit down days for weeks but quickly changed course after the Fed intervened.
Now the chants of “stocks only go up!” and “money printer go brrr!” echo throughout the media.
A Stock Market Casino In Your Pocket
A new breed of fearless traders have emerged after being taught to “always buy the dip.” These traders use a popular trading app Robinhood and are notoriously mocked or praised for their investing decisions.
Warren Buffet sold his airline holdings near the lows, and the shares were gobbled up by retail traders aka Robinhood traders.
In the short-term, these speculative dip buyers seem to be making brilliant moves and are even outperforming hedge funds. In the long-term, Robinhood and retail traders that are buying everything up are likely to get burned.
At least, that’s what most seasoned investors believe.
Barstool Sports CEO and gambler Dave Portnoy has joined the insanity as well. He flexes his giant day trading losses and winnings on Twitter while mocking Warren Buffet and other predominant investors.
Reckless monetary policy combined with reckless trading, it’s a recipe for disaster, but right now, it’s more like a disco.
Those that trade on logic and fundamentals are out of luck. The Fed is buying everything from junk bonds to Apple bonds (yes, the company that has close to $200 billion cash on hand). Does it make sense? What will they buy next?
The Feds actions do not fall in line with Keynesian economics and they have gotten carried away. It is obvious that the Government is addicted to debt and easy money.
Now that the stock market is a casino, don’t try to fight the Fed, or the house will win. Just join the millions of gamblers placing bets on their favorite meme stocks instead.
That’s the formula that has been working, but eventually, the markets may come back to reality.
July 2020 US Market Performance
Equities and long-term treasuries performed well in July. Gold outperformed everything last month and is currently leading year-to-date.
July 2020 Market News Recap
McDonald’s second-quarter earnings were notably bad. The company reported a 30% plunge in sales, citing the coronavirus kept customers away. Earnings fell a staggering 68% as people are thinking more about their health and eating out less. Shares of McDonald’s were resilient and only suffered a 2.4% loss after earnings were announced.
The Federal Reserve declared they would maintain interest rates at near-zero, stating, “The path of the economy will depend significantly on the course of the virus.” The Fed plans to keep providing liquidity through September and extended its US dollar liquidity swap through the end of March 2021.
Fed Chairman Jerome Powell reiterated what he said in June that the Fed is “Not even thinking about thinking about raising interest rates.”
The US Mint is facing a coin shortage and asking for people to deposit and spend their change. “There is an adequate amount of coins in the economy, but the slowed pace of circulation has meant that sufficient quantities of coins are sometimes not readily available where needed,” the Mint said in a statement.
Kodak Eastman Company, the once predominant disposable camera maker, announced plans to start making pharmaceutical ingredients. A $765 million loan from the Trump administration helped solidify the seriousness of the shift in business. The stock jumped more than 2,000% at one point after the announcement. The CEO was granted stock options the day before the news hit. Hello SEC?
Tesla beat Wall Street’s earnings expectations for the 4th time in a row. The electric vehicle maker is now aiming to join the S&P 500 index. Tesla bears are more focused on how the company boosted its margins with regulatory credits.
Intel stock took a beating after it announced a third-party manufacturer might make its next-generation chips instead of them being made inhouse. Investors are now favoring TSMC and AMD, as Intel continues to lose market share.
Gold broke a record closing high and is soaring at prices not seen since 2011. The excessive money printing and stimulus from the Fed have hurt the dollar and helped gold break higher. Low-interest rates and the abysmal yields of bonds have made conservative investors flock to gold and silver.
The US closed the China consulate in Houston, and China closed the consulate in Chengdu. The tension between the two countries continues to rise. President Trump stated the China trade deal “Means less to me now than it did.” At this point, the trade deal seems to be in an awkward position.
GDP – The U.S. gross domestic product plummeted by 32.9% in the second quarter, the biggest drop on record. The terrifyingly large drop is a grim reminder of the poor economic reality facing the US and most of the world.
Moderna has started phase 3 trials of its Covid-19 vaccine. The tests will conclude if the vaccine sufficiently protects against the virus and if it will be cleared for use.
Pfizer and BioNtech announced they are getting close to completing the trials for their Covid-19 vaccine. The pharmaceutical giant also foresees lasting demand for the vaccine.
Exxon and Chevron both reported their worst losses in decades. Exxon disclosed a second-quarter loss of $1.1 billion and Chevron reported an adjusted lost of $3 billion.
Big tech CEOs faced hard questions from congress during the antitrust hearing in late July. Jeff Bezos (Amazon CEO) didn’t confirm or deny the use of data from its third-party sellers to manufacture its products.
MarketWatch reported on the antitrust hearing: “Our documents from Facebook show it considered Instagram a ‘competitive threat’ that could meaningfully hurt Facebook, so Facebook bought it,” Rep. Jerrold Nadler, D-N.Y., chairman of the House Judiciary Committee, said in a particularly contentious exchange with Facebook CEO Mark Zuckerberg. “This should not have been allowed to happen.” Conclusions from the hearing are anticipated to be released in a report later this year.
Google, Amazon, Facebook, and Apple all beat expectations in their 2nd quarter earnings the day after the hearing. The mega-corporations have remained strong during the pandemic and have continued to grow. Apple announced a 4-1 stock split which will begin trading split-adjusted on Aug. 31st.
Market Outlook for August 2020
All eyes will continue to be on the coronavirus. If cases of the virus explode higher, there is potential for some states to go back into lockdown. A second lockdown is unlikely, but it is something to watch out for. Vaccine headlines should be prevalent throughout the month, which seems to help conveniently push the market higher.
School reopening’s may have a small effect on the market. President Trump is pushing for schools to open, yet he is being met with some heavy opposition. Outbreaks happening at schools could be a market-moving headline.
The second round of stimulus is slated to happen this month. As usual, Republicans and Democrats are struggling to agree on the amounts and provisions.
It would be very bearish if they do not come to an agreement or if it gets pushed back further. Unemployment benefits and stimulus checks are keeping everything afloat until the economy fully reopens and recovers.
The Fed and government seem to be doing all they can to prevent a deep recession; their actions are likely to make things worse.
Gold could continue to rise, with more stimulus projected and high demand for the precious metal. The dollar is likely to continue to slide or stay flat.
Stocks should climb higher as zero interest rates make it difficult for investors to find returns. The Fed liquidity program is also still in full effect, which should help equities.
August appears to be another drift higher month for the markets with a limited amount of down days. However, the uncertainty with the virus, the Fed, President Trump, and China should make bulls feel somewhat uneasy.