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Weekly Economic and Stock Market Commentary – October 12, 2020


As for the stock market specifically: 

Investors in the US and all around the world bounded into the stock markets, and the major market averages jumped multiple percentage points last week. As far as the S & P 500 is concerned, we are back in a normal year.

Of course, it is only October 12 and we still have a few weeks left in the month, and we know from history strange things can, and sometimes do happen.

The supposed impetus for the rally is the pending fiscal stimulus deal between our Congress (where the House is on recess and the Senate is working largely remotely) and the President.

Since this is not a speculative column, I will stick to the numbers on the table.

Stimulus Package

The President offered a package last valued at $1.8 trillion dollars, and the Speaker of the House called that amount of spending “grossly inadequate.” She wants $2.2 trillion dollars in this bill.

The federal government spent approximately $5 trillion dollars on coronavirus expenses in 2020. I don’t care which side of the aisle you prefer. I do however ask you to consider all of the money already spent, and all of the sums yet to be spent, I think it’s worthwhile to recall the PIIGS crisis from 2009-2014. PIIGS was the acronym for Portugal, Italy, Ireland, Greece and Spain. In basic terms, the world (ie those who lend money) found out that the economies of these countries simply could not support the amount of debt they’d taken-on. Then… to put it mildly, the Eurozone economies froze. No additional lending to these countries, the Euro-markets then plummeted by roughly 30%. Translation, eventually the bill comes-due. Perhaps both sides will keep this in mind as they chart our futures.

The risk assessing indicators had a great week. Each of them moved up by at least 5 percentage points. While that is the good news, we find ourselves in a year similar to 2008 with the number of changes in direction of the bullish percent indices. In 2008, the NYSE Bullish Percent index changed directions 16 times. So far in 2020, there have been 12 changes (is anyone dizzy yet!).

Remember, Xs mean OFFENSE or wealth accumulation, while Os mean DEFENSE, or wealth preservation.

Below is where our indicators stand as of October 12, 2020 (Courtesy Dorsey, Wright, and Associates).

On a general note: 

In news that should shock nobody, the Congressional Budget Office told us the budget deficit for Fiscal 2020 that ended September 30 was $3.1 trillion dollars, and represented 15 % of the nation’s Gross Domestic Product. The deficit was the largest in history on a dollar value, and the largest percentage of GDP since 1945. The Treasury Department and Office of Management and Budget will release their figures later this month.

Federal Reserve Chairman Powell jumped into the negotiations about the stimulus bill. He advocated for a larger bill than planned by either side of the negotiators. He said the economy faces “tragic consequences” if the bill is too small.