Financial Markets are in Survival Mode; Investors Look to the Future, Economy Looks to the Present
The United States is about to enter its sixth week with an overwhelming majority of the country under various containment restrictions, and the side effects are striking the economy daily. Last week alone, the country saw an increase in the record-breaking numbers of jobless claims, oil prices sank to negative levels, and the high hopes for a leading antiviral drug to impact the side effects of COVID-19 were put into question. Despite the daunting news that is released daily, Wall Street seems to have confidence in Washington’s rescue efforts along with the talk of a gradual reopening of the economy. The Dow Jones Industrial Average is up about +.95% this morning, Americans are seeing a contradistinctive trend between the economy and financial markets as the closely related indicators respond to reports.
“The economy is all-time bad right now and will be for a while. However, the stock market has not seemed to care. The S&P 500 has gained over 25% in just over three weeks,” said Forbes Senior Contributor Rob Isbitts.
Wall Street keeps the economy enthusiastic, “greed over fear...compensation drives behavior,” Isbitts wrote. This investor mindset is seen in the rebound of petroleum stocks last week. On Monday, oil prices plunged negative; the historically low levels represent supply dramatically passing demand due to the coronavirus outbreak. Market Watch reported as the most profound one-day drop in history. However, on Wednesday, oil prices surged as investors regrouped after the 48-hour turmoil in the stock market.
Companies such as West Texas Intermediate crude (CL=F) closed the market Monday at negative $37.63 per barrel and saw a rebound later in the week of over 20% to $16.94 per barrel. The disappearing demand for oil persists with fear of the lack of storage facilities for the ongoing drilled petroleum. Bloomberg noted earlier in the week that dozens of oil tankers surrounded the California coast with enough crude to satisfy 20% of the worlds’ daily consumption with nowhere to bring the excess supply. The stock market rallied behind the oil price rebound on Friday, all averages gained around 1% at market close. Movement in stocks last week was also due to the release of some earnings reports by large companies.
This past Thursday was an intense day for Wall Street as two major reports showed a weak economy and reversed health progress. Regardless of the piled-up adverse news, the markets did not plunge across the board and closed flat for the day.
Early in the day Thursday, a Financial Times report claimed that the World Health Organization accidentally posted a report suggesting the promising Gilead antiviral drug was ineffective in COVID-19 patients in China. It did not prevent fatalities or improve symptoms. The WHO immediately removed the post and spoke out, saying the report was an inaccurate representation of the findings. Investors rallied behind medical trials that showed the treatment to work in previous weeks; however, with the same news reversed, the primary impact was on Gilead shares (GILD), which dropped -4.3%.
Jobless claims jumped to new levels last week; the government reported Thursday that another 4.4 million Americans filed for unemployment, which raised the five-week total to over 26 million. In efforts to aid the depressed economy, Washington passed a $484 billion relief bill this week to rescue the Paycheck Protection Program that quickly ran out of funds. “Phase 3.5” efforts allocate $380 billion for small businesses, $75 billion for hospitals, and $25 billion for disease testing.
Investors strategically spend as they hope for a gradual reopen that has come from lawmakers and airline companies. Without consistent or reliable predictions of what the economy will do in the coming months, Wall Street has not given up as investors spend with caution while abstaining from a complete stock market crash. Stockholders have placed themselves strategically by not overreacting to the economic reports, as they perform in survival mode for any perceived result.
Isbitts claimed, “Allowing for a very wide range of outcomes, and….this is the key….having a specific action plan for each one of those scenarios...That is investment advice. Everything else is just sales.”