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The Fed’s bearish outlook puts the global stocks rally on pause

August 20, 2020, 9:30 AM UTC

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Good morning. Stocks were cruising to another day of gains on Wednesday when the Fed went and spoiled the party—well, spoiled it for most stocks not named Apple. The Fed minutes from the July meeting show the central bankers are not nearly as bullish as investors. That’s enough to put the global equities rally on pause today.

It’s looking like a risk-off Thursday. Here’s what’s moving markets.

Markets update

Asia

  • The major Asia indexes are all in the red, with Hong Kong’s Hang Seng leading the way lower, down 1.5%.
  • The pandemic has put globe-spanning supply chains in the spotlight, and a new analysis puts a price tag on just how much it would cost non-Chinese firms to repatriate their manufacturing operations currently in China. How much? $1 trillion over a five-year period
  • Australia’s Qantas reported a $1.4 billion full-year net loss, its first since 2014, and said it expects international travel to be in the doldrums for a while. It will take three years for Qantas to get its Airbus A380 fleet back in the air.

Europe

  • The European bourses were off significantly at the open, with Paris, London and Frankfurt all down at least 1%.
  • Spain recorded a four-month high in coronavirus cases yesterday, signaling trouble ahead for Prime Minister Pedro Sanchez. The economy is already in deep recession and the spike in cases is hammering the vital tourism sector.
  • Scandal-plagued Wirecard will be booted from the blue-chip Dax, replaced by a stay-at-home stock, Berlin-based Delivery Hero.

U.S.

  • The U.S. futures have been falling all morning, pointing to a weak open. The markets sunk in the last hour of trading on Wednesday after the Fed shared its doubts of further economic recovery without government support.
  • Apple shares are flat in pre-market trading after the tech giant made history, joining briefly the $2 trillion valuation club. Which stocks are next to hit that mark? Fortune‘s Aaron Pressman runs the numbers.
  • The big retailers are reporting big numbers. Yesterday, it was Target unveiling a big top-line sales beat last quarter, “by far the best performance in the 58-year-old company’s history,Fortune‘s Phil Wahba writes. E-commerce was the big catalyst.
  • It’s Thursday, which means we get our weekly check-in on the labor market. Economists forecast today’s number will come in at an additional 920,000 unemployment insurance claims. “The numbers have been trending down,” writes UBS economist Paul Donovan in an investor note this morning, “but the economic consequences of claims are larger than they were—because the loss of additional unemployment benefit increases the cost of being jobless.”

Elsewhere

  • Gold is down, falling below $1,950/ounce.
  • The dollar is up a tick.
  • Crude too is down again, despite more bullish outlooks that demand will recover by year-end.

***

The making of a bull market

The markets may be nudging downwards this morning, but there’s still plenty to say about Tuesday’s record close for the S&P 500.

It wasn’t quite the fastest bottom-to-top jump in the history of the index, but it was notable for other reasons.

To recap, the S&P hit its previous all-time high on Feb. 19 and then bombed downwards. You no doubt remember what came next. It lost 34% over the next month, the fastest drop of this severity in bear market history.

Over the course of the next five months the U.S. economy entered a devastating recession and unemployment rates hit highs last seen during the Great Depression.

But the markets started to come back, helped by trillions in fiscal stimulus spending and the Fed’s super-loose monetary policy. The result was a five-month rebound back to record territory.

As today’s chart shows, courtesy of LPL Research, the rollercoaster ride we’ve been on is truly rare.

Firstly, bear markets tend to be a grind. Equities usually lose steam and then bounce back over several months, not weeks.

Historically speaking, the average recovery period from a bear market bottom to a new high is 10 months when the economy is seeing some level of growth. When the economy is in recession, as we are now, the bounce-back takes, on average, 30 months.

This time around, it took roughly six months to go from top to bottom to top again. That it occurred during a recession, a pandemic and record unemployment is a startling feat.

“This will go down as the fastest bear market ever, but also one of the fastest recoveries ever,” LPL Financial Chief Market Strategist Ryan Detrick, explained in an investor note. “Then again, we’ve never quite seen a recession and recovery like this, so maybe it isn’t a shock to see new highs this quickly.”

The rapid rise and fall of the S&P has a lot of veteran market watchers uneasy. Yesterday’s sharp, late-day sell-off was but one reminder that the economic recovery lags well behind that of the markets recovery.

We’ll probably get another reminder of that fact before the open of today’s market when the latest unemployment claims are announced.

***

Have a nice day, everyone. I’ll see you here tomorrow. 

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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