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North American markets today, Monday, viewed several hours before opening at 9:30 a.m. EST appear poised for a positive start with major indicators firmly in the green. Illustrating the changeability of the indicators and the market, the DOW, S&P 500 and NASDAQ all shifted from red to green while I was developing this column. They are reflecting optimism following President Joe Biden’s signing of the $1.9 trillion stimulus program into law last week, generating a belief that it will speed economic recovery.
The safe havens of gold and silver are also in the green. The Canadian dollar and British pound are up while the Euro is down.
This follows a very mixed Friday trading session that saw the DOW closing high and the NASDAQ closing low.
European markets are open at time of writing and the major indicators there including the FTSE 100, DAX and CAC 40 also swung from red to green while I was developing this column.
Several pairs of contradictory forces appear poised to continue operating in both the stock market and the economy and Friday’s trading session points up one of them. The DOW index ended at a record high which a Reuters report attributed to investors buying shares likely to benefit from a strong recovery. The DOW contains traditional blue-chip value companies such as Goldman Sachs, Johnson & Johnson and JP MorganChase. Meanwhile the NASDAQ, which has a number of high-flying tech stocks including Facebook Apple and Microsoft dropped.
In effect, investors swapped high-ticket tech stocks for energy, mining and industrial companies more poised to benefit from the economic recovery, according to the same Reuters report.
Also high on the list of pairs of opposing forces is the pull between the vaccine-driven belief that recovery is on the way, counterpointed with continuing high unemployment since the pandemic first hit. Central banks including the U.S. Federal Reserve appear likely to continue keeping interest rates low and to keep the stimulus.
In the streaming wars battle for viewers’ living rooms, AT&T announced on Friday that it expects up to 150 million subscribers around the globe for HBO Max and HBO and $15 billion in revenue for them by the end of 2025. This takes AT&T into direct competition with the Walt Disney Company’s Disney+ and NetFlix Inc. which currently dominate the streaming market. Like Disney+, HBO Max has an advantage in its large vault of existing material, in this case including Warner Bros., New Line Cinema and Cartoon Network productions. What is unclear is how many consumers will subscribe to more than one service.
Another pair of opposing forces is the effect of stimulus checks on employment counterpointed with some harsh realities. While these checks will help cash-strapped individuals and power consumer spending to some extent thereby creating jobs, it appears unlikely that many service jobs in the hospitality and retail sectors will ever return. The Opportunity Insights Economic Tracker says that the recession has nearly ended for high wage workers but that job losses persist for low wage workers.
The vaccine-induced mood of recovery also brushes against fears of renewed lockdowns in several countries. The economic impact of lockdowns in job losses, business losses and even tax losses, has been conclusively proven.
And while rising bond yields have triggered fears of increasing inflation, flows into equity mutual funds doubled last week from the previous week. Flows into equity mutual funds hit $20.4 billion in the week to March 10, according to Reuters. Indirectly reflecting the difference between the DOW and the NASDAQ discussed above, technology funds showed a net outflow while the financial sector attracted an inflow of $3.14 billion, the largest in eight weeks, according to Reuters.
Fears of a correction bump up against Friday’s record high in the DOW as investors focused on shares that would benefit from a strong recovery.
More difficult to understand but no less important is that as the aversion to risk seems on the increase, high-risk investing manias also appear to be on the increase.
A trading card featuring Tampa Bay Buccaneers quarterback Tom Brady sold 10 days ago for $1.3 million. Prior to that a Kansas Chiefs quarterback Patrick Mahomes card had sold for $861,000
Last Thursday, a digital art piece by an artist known as Beeple sold for $69.3 million at Christie’s British Auction House. This sale is in the new category called non-fungible tokens.
And on Saturday, bitcoin hit $61,073.71. It started the year at $27,734
All of these factors and others add up to ever-increasing confusion confronting investors and indirectly underline the importance of a solid advisor-client relationship.
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