“While the fiscal rescue package, in combination with the Fed’s monetary stimulus, was enough to rally the market, it remains to be seen whether it is enough to plug the gaping hole in the economy that is just around the corner. More than three million Americans filed for first-time claims for unemployment insurance in the week ended March 21, and economists say the numbers will get far worse in coming weeks.
Stocks could still head south toward their recent lows, or even tumble further. “Every time we see those numbers, the market will act like it’s a surprise and go down,” says Peter Andersen of Andersen Capital Management.
What’s more, the financial stimulus and corporate rescue measures might not bear fruit commensurate with the trillions of dollars that will be spent to survive this crisis. Wolfe Research strategist Chris Senyek says it would be “shockingly good” if each dollar spent translated into 50 cents of GDP growth. “This package will help improve consumer, business, and, especially, investor sentiment,” he says. “However, we’re not that optimistic about the fiscal program’s ability to boost GDP growth.“
Personally, I am pretty sure last weeks rally was a typical bear trap and that soon the sentiment about the stimulus will wear off as reality around Corona on the short term (the US is now the epicentre, or soon will be) and it’s economic impact on the medium term (reporting season begins in April and runs through May) sinks in.
I think we will get a retesting of the 18th March bottom, but that we will sink there not in a sharp fashion but in a more gradual fashion as bad news drip feeds out.
I have gone mostly into cash and am sitting on the sidelines - I sold nearly everything into last weeks bounce. A few stocks I held onto, as I would have to sell them at too great a loss and they’re quality companies so will eventually rebound.
My plan is to max my ISA this year out in cash, then come 14th April max next years out in cash straight away and sit ready to pounce.