In Focus: Wall St. Vs. Main St.
It is getting spooky out here. Whether you're an investor or not, you've likely felt it, the divide between Main Street and Wall Street. Without a doubt the two are on two different plains, analyzing and assessing the situation through two different sets of glasses, and that's a bit scary to me, and it should be to you no matter what side of this you find yourself on.
Since hitting its coronavirus low on March 23, 2020 the Dow has increased by 30%. A 30% increased based on very little good news. The major investors are celebrating, but I'm not exactly sure what we're celebrating.
There is still no cure for COVID-19, and the closest thing we have for a treatment is Gilead Sciences (GILD) drug remdesivir, which has been approved for emergency use in the U.S. But with no cure and a treatment still in the works, states have begun to reopen. Wall Street has taken the states reopening as an all-clear sign to jump back into the markets. The rising markets could be another financial disaster waiting to happen.
As I expected places like New York have stabilized, while middle America is starting to get hit with rising coronavirus cases. Georgia has seen an increase in COVID-19 cases since reopening. North Carolina saw 639 new cases on May 6, 2020, the most ever, but the state is still reopening. Sadly, it appears states have locked themselves into a reopening schedule, with no regard for new information medical or otherwise.
But why did I expect this? In New York City, there are a large number of people who were not born and raised in New York City. The city is filled with transplants, some of middle America's best and brightest minds, who all converge on the city to chase the dollar. But in a time of crisis, and a city going into lock down, I expected those bright minds who had exposure to the virus to flee the city and head back to middle America, exposing a new set of people to the virus. But now I wonder, when New York reopens, and those people head back to the city that has stabilized, do we see a new rise in cases in NYC?
Don't Miss The Rally
Some have suggested FOMO (Fear of Missing Out) as the reason behind the recent market rally. Investors are putting money into the markets because they are fearful of missing out on the rally back to all time highs. There was a lot of money lost by money managers and others that took their cues from the U.S. administration, and played the coronavirus like a flu. Those firms lost a lot of money, very quickly, and they are eager to make it back.
Also, the everyday investors, especially those that read this column, understand that the seeds of fortune are planted during a crisis. With that philosophy it's best to buy when everyone is fearful. I'll admit, I've been nibbling here and there, buying stocks on the way down and on the way up, but this rally has really thrown me for a loop.
Let's examine one of my largest positions, Apple (AAPL), and what has happened to that stock over the past 6 month. The stock rallied in late 2019 and into 2020, making a pre-coronavirus all-time high of $327 per share. The reason behind the rally was 5G in iPhones. I've stated several times before that it was a weak investment theory, and didn't warrant a $327 stock price. As travel bans and shelter-in-place orders hit, Apple's stock traded down to $224 per share on March 23, 2020. On May 8, 2020 the stock closed at $310 per share, which is mind blowing.
The country is experiencing high levels of unemployment. 20 million Americans lost their jobs in April. Food banks are finding it harder to secure food. The U.S. meat industry is facing a major disruption. Businesses big and small are about to go under, some of the names we've known for as long as we've been alive may go under for good, and investors think people are going to make buying the next iPhone a priority? What am I missing?
I've been told that I'm missing the changing economic data. That gasoline demand bottomed the week ending April 10, and since then has been climbing back up. That passenger screenings at airports are now double what they were during the lows in April, and that mortgage purchase applications have increased 40% since mid-March.
While I've seen the data, I've been surprised by most of it, except the demand in gasoline rising. People have a need to move, I assumed that with the slightest lift of restrictions people would go everywhere they could. But a rise in mortgage applications is surprising. To see the data that so many American's feel confident enough in their jobs and ability to earn that they are back to buying houses definitely caught me off guard. The same with airline travel. While I did expect airlines were going to provide great deals to fly, to see that people are ready to sit next to strangers in a metal tube of recycled air as we still battle the coronavirus nationally and internationally, again caught me off guard.
I've had to ask myself was I caught off guard because of the rapidly rising markets or because the market didn't double bottom when I expected them to? I'd have to say I'm more caught off guard by the rapidly rising markets. If the markets never retested the lows of March, but were up single digits or even10% from March 23, I could find some, but not a lot to justify those types of gains. I can't find any justification for a 30% gain in the Dow.
There is the belief that the Fed will save everything, which is likely what's driving the positive changes in some economic data, but will the Fed's moves provide the average 9-to-5er with enough confidence in the economy to buy the next iPhone or that big screen TV on Black Friday? I don't think so. I still remember when I received my stimulus check from the Bush Administration, I clung to it for dear life. At the rate I had witnessed people close to me lose their jobs I tried to hold onto every dollar coming in, I even started drinking well gin, ugh.
What is scary about this current situation is this current administration, which has used the stock market as its report card. Pre-coronavirus crisis, and during a time of 50 year lows in unemployment, and the stock market reaching all-time highs, the administration pressured the Fed to lower rates in order to keep the stock market rolling, not because it was in the best interest of the average American.
With the stock market skyrocketing off those March lows, the current administration may mistake the stock market being good for the country being good, and that could be a disaster for us all, investors and non-investors alike.
There is still some bad $h!t coming. Over a month ago I discussed the change in commercial real estate that would occur if working at home turned out to be efficient for companies (same level of productivity while not in the office), and big companies decided to not renew leases of large work spaces. From the news this week, I was onto something. Every day of the past week I read or watched a report about the big hit that could hit commercial real estate as more companies move to at-home work forces. If commercial real estate takes a hit, how many other industries feel the pain?
What Should Investors Do?
Investors should continue to nibble at the markets, buying good companies at value prices when they can. Investors should avoid going all in on any one name. If you're sitting on $5,000, going all in on Disney because it's down isn't the wisest move. Break that investment up, buy some Disney now and some later. Investors should also have an exit strategy. Because we're in what feels like a silly season, we're seeing stock prices rise to levels that their fundamentals do not warrant, take advantage of this and be prepared to sell and get out while the getting is good.
What Should Non-Investors Do?
Non-investors should do everything the investors were instructed to do. The country isn't out of the woods, but the stock market is rising. The president and his administration puts the stock market over almost everything. The investor is in favor, so become one as soon as possible and reap the rewards of taxpayer bailouts, dividend payments, and share buybacks that increase your ownership stake.
Stay safe, invest with your head and not over it.