What’s going to get in the way of market gains? Clearly not bad news on COVID-19, as investors try to look on the bright side of these uncertain times.
In a note to clients, Lee says “data shows how abruptly hedge funds switched to bearish positioning in June. And coupled with high levels of mutual fund cash, balanced funds have the highest cash balances since before 2009. Thus, the fact ‘it could have been worse’=risk-on.” Bottom line, Lee says, is that a combination of stocks near their highs and cautious positioning means investors should stay overweight equities. And while earnings are about to get under way, and they will be “lousy,” with little guidance, that has all been well telegraphed, in his opinion.The market No sign of a shift away from that positive momentum, with Dow YM00, +0.66%, S&P ES00, +0.64% and Nasdaq NQ00, +1.41% futures higher, alongside European stocks SXXP, +0.68%.
Conversely, the reporting bar for these financial stocks and other underperformers — down 30% year to date — may be so low that the only way for those stocks is up, he says. Shares of chip maker Maxim Integrated Products MXIM, +12.95% are climbing on news rival Analog Devices ADI, -3.08% will buy it in an all-stock deal, and shares of special purpose acquisition company Churchill Capital CCXX, +13.22% are surging on news of an $11 billion merger with health-care service provider Multiplan.
Because the pandemic will, eventually, end and life and business will go on.
So, my question is, with the S&P down a paltry 1% YTD, are we really only 1% worse off than we were on January 1? My gut tells me no, and this house of cards the market has constructed will not end well.