Stocks Rise, As Earnings Sink, And Economy Crumbles

Stocks Rise, As Earnings Sink, And Economy Crumbles

May 8, 2020

Stocks – None

Macro – SPY

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S&P 500 (SPY)

The Atlanta Fed GDPNow model is forecasting a second-quarter annualized contraction of 34.9%.

Stocks advanced today, with the S&P 500 finishing the week higher by about 3.5%, and flat for May. This week, for the most part, seemed to be a reversion trade from last week’s sharp sell-off. With earnings season winding down, we should begin to get some better clarity where things stand. 

From a fundamental standpoint, there are many stocks today trading at the same levels they stood at in February. Yet, their earnings and revenue estimates have fallen dramatically, making them more expensive on a fundamental basis. It is interesting with the apparent logic is that these stocks are just simply overvalued at this point. You can make that case about the entire S&P 500 at this point. 

While the S&P 500 may continue to rise, the underlying fundamentals of the market, meaning valuations, simply do not support the price action.

Additionally, the price action of the LQD is something worth continuing to monitor. As prices fall, those yields are rising. 

S&P 500, spx

I’m also watching the health care ETF very carefully because it appears to be forming a head and shoulders pattern. Now, I have never been particularly good at calling head and shoulders patterns, but it looks like one. Health care is a huge part of the S&P 500 overall. 

heatlh care

Anyway, all I can say is be careful, and heed the warning signs markets are sending.  

-Mike

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