foxex: Not Buying It

Chart Advisor | Focus on the Price

Friday, March 27, 2020

1. Bonds close higher as stocks sell off

2. Does global investing make sense right now?

3. Streaming providers outpacing the markets

Market Moves

The U.S. Congress passed its massive spending package in an attempt to do its part to help improve economic conditions. The market's reaction was to buy bonds and sell stocks (see the chart below). That's not a good sign for those hoping that the recent three-day rally will translate in to a rapid market rebound in the days ahead.

Many shrewd investors will be wondering whether they should even be interested in purchasing U.S. Treasury bonds at a time when the U.S. government just saddled itself with greater debt obligations than it has ever had before. It seems that bonds should be going down in price right now, not up. However, if you take two potentially unpleasant events and try to guess which one is more likely to happen, then the market's dynamic today will make more sense.

Consider the options: either the COVID-19 pandemic wrecks the economy and puts the U.S. into a recession (not to mention all other countries), or the U.S. government begins defaulting on its debts. Which is more likely? Today investors voted with their money and chose the latter to be least probable. While everyone hopes neither happens, it is clear that investors are more worried about the immediate economic impact than they are about fiscal mismanagement by political leaders.

Does Global Investing Make Sense Right Now?

If the market were to actually rebound, eventually, one of the places chart watchers might find evidence would be in a comparison of global indexes. Should the more risky markets begin to rapidly recover, it could be a sign that markets may recover soon. Consider the chart below which provides a comparison of the S&P 500 index ETF (SPX) with iShares' MSCI global index funds for various countries, including the Japan ETF (EWJ), the U.K ETF (EWU), the Germany ETF (EWG), the China large-cap ETF (FXI), the Brazil ETF (EWZ), and the Emerging Markets ETF (EEM).

The chart shows an interesting comparison because the Japan and China indexes are leading out. But perhaps the most important observation is that, the biggest laggard of 2020, the Brazil index ETF, is not recovering faster than the others. That's what a full rebound should include.

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Streaming Providers Outpacing the Markets

The chart below compares the two largest companies streaming content into quarantined homes, (NFLX) and Amazon (AMZN), and two other would-be participants in that market, Disney (DIS) and Roku (ROKU), with the S&P 500 index (SPX). While it is clear the top two hold a dominant position, notice that the lower two have come up off their lows to a greater degree than the S&P index has in general. All four of these stocks may provide evidence that a recovery can come, and will be strong, if and when investors decide to put their money back to work in whatever kind of society emerges on the other side of the current pandemic.

The Bottom Line

Investors chose bonds over stocks today while the VIX remained above 60 for the tenth day in a row. A comparison of global indexes doesn't offer much hope of an end in the downward trend, but a look at streaming providers does. Meanwhile option sellers aren't ready to predict an upward trend in the next two weeks.