foxex: Any News Good

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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Friday, May 08, 2020

1. Stocks lift higher after job loss reported

2. Investors eye airline industry

3. Risk appetite remains high

Market Moves

See if you can imagine the following scenario: you arrive home after having been sequestered to a remote location, cut off from any news of the world, for the past four months. Upon arrival this morning you were first told that the Nonfarm Payroll report showed 20 million jobs lost last month and U.S. unemployment well above 14%. Suppose further your news-bearing friend told you those numbers represented the worst single-month drop ever and nothing like it had been reported since the Great Depression. Would you then expect your friend to tell you that the Dow Jones Industrial Average (DJI) closed nearly two percent higher on the day? Probably not, but that is what it did. It seems as if any news is good news to investors these days.

Such is the nature of the market we are experiencing. Many analysts are certain that it means dire things ahead because investors simply keep buying up stocks without heeding the warning signs. The simple explanation for this is that people are not robots. Investors are not driven by algorithms and hard and fast data. Every bit of data in the markets has a context and investors arrive at a pluralistic consensus about what that context means.

As the two charts below demonstrate, the current context is that these pandemic-induced circumstances are unique and consensus among investors is that these times are not subject to conventional investing rules. The first chart below, courtesy of Bill McBride's Calculated Risk blog, shows just how drastic the change in job status has been this past month. Nothing like it has really ever happened this way before. The second chart is the market's reaction under a microscope, looking at shares of Apple (AAPL) throughout the trading day today.

Some analysts opine that we would all be better off if we simply let indexes and algorithms take over. However data-driven investing would certainly have driven investors out of the market today, unless they could include a unique context for the day. So instead of selling off ferociously, Apple shares climbed higher and then jumped $2 higher still on an otherwise unimportant headline: that the company would re-open some of their stores in Idaho. This rabid desire to buy stocks on the rebound may prove to be egregious human folly, but for now, the wisdom (or madness) of the crowds is that the economy will rebound.

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Investors Eye Airline Industry

One particular industry today attracted some of the boldest investors: airline companies. The chart below compares iShares' Transportation index ETF (IYT) with four particular airline companies: Delta (DAL), Southwest (LUV), Alaska Air Lines (ALK) and Skywest (SKYW). While all airlines have had it rough and few expect them to recover soon, the last of these actually turned in a positive earnings report today, and investors snatched up the stock thereafter. Seems almost foolhardy unless you consider that travel restrictions may ease this summer and airlines that can remain profitable, like Skywest reported they did, will only perform better as that happens.

Astute chart watchers understand that whether or not buying an airline stock right now is a good idea, the more important point is that many investors are willing to do it. This is a strong indication of bullish investor sentiment if there ever was one.

Read more:

Slumping Banks Warn of Trouble Ahead

April Job Losses Top 20 Million as Unemployment Rate Spikes

Travel Stocks Rise as Investors Eye Easing Domestic Restrictions

Top Spiking Technical Analysis Articles This Week

Risk Appetite Remains High

The chart below compares the performance of four asset-specific ETFs since their low points in March. IShares' Russell 2000 index ETF (IWM), State Street's S&P 400 Midcap index ETF (MDY), iShares' Russell Microcap index ETF (IWC) and Invesco's Nasdaq 100 index ETF (QQQ). Each of these represents a slightly more risky asset than the S&P 500 index (SPX), but all have outperformed the benchmark index to a very surprising degree. Apparently investors not only expect the economy to rebound, but judging by these charts, they expect it to rebound quite sharply.

The Bottom Line

Stocks rallied today even after the worst jobs reports in our lifetimes. Every measure of risk appetite and investor sentiment shows that people want to invest because they expect the world to get back to normal soon. Judging it to be wisdom or madness is for history to dictate, but for now, any news seems to be interpreted as good news.