Commentary

Lives vs Livelihoods

We expect May to be a pivotal month for the markets as the success or failure of the experimental economic re-opening of certain US states is likely to become clear.

Ultimately, the decision to start re-opening our cities and economies requires weighing the competing interests of the negative impact of human sickness and death versus the positive economic benefits for monthly income.  The Donald continues to lean towards livelihoods, scientists continue to lean towards lives.  Personally, I’ll trust the scientists.  Regardless, as important as the decision to re-open is to the health of human beings and their monthly incomes, the equity markets are more agnostic.  The markets are instead attempting to look forward to determine what all of this means.  Currently they appear to be taking their directional signals from improving pandemic developments in New York along with the hope for positive economic benefits from increased commerce as the business engine starts up.

So, in the short term (days and weeks) we expect the markets to continue to trade higher (and with less volatility) as they re-bound on positive covid-19 results and news.  The jury however, is still out on what the intermediate term impact of the “lives for livelihoods” decision will be.  At the current time both New York and national pandemic data is improving – so far, it has been as New York goes so goes the country, but that may change.  Buried in the US result is the fact that new cases and deaths are now showing signs of increasing and spiking outside of New York.  These divergences will need to be followed closely as states release the twin hounds of human interaction and business activities.

Given a two week incubation period for covid-19, early indicators of the success or failure of the great “re-start” are likely to start showing during May.  We will be watching closely as a stumble (easily identified as an upward inflection in cases and deaths) at some point in the next while will not be a positive for market direction. As desperately as Trump wants to re-open the country (in my mind this decision is a gamble for the November election – if it works he wins), I would note that we are now witnessing significant outbreaks in food processing plants country wide.  The trillion dollar question – are these outbreaks isolated cases, or are they a harbinger of things to come?

As Craig indicated last week, from a mandate perspective we actively increased equity exposure as underlying market internals improved during April when a positive Pivot signal occurred alongside this hopeful rally.  My hunch is that the market will continue to grind higher, but if positive covid-19 data trends turn negative the market is likely to follow along.

With that being said, we will continue to follow our Pivot signals and move to protect capital (as we did in February before the March market collapse), if/when our Pivot indicator triggers a sell signal.  Until then we will continue to catch this upside ride.  It’s important to remember that it is the environment we are working with right now where we have an impact, it’s not the last market high or low.  We continuously monitor client capital working to protect it when necessary and letting it thrive when possible.

As always, we are just a phone call away.  Please feel free to call at anytime.

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