US unemployment and fake markets

25 Sep 2020

Yesterday's data on jobless claims (applications for unemployment benefits) gave further confirmation in favor of the fact that the "fast recovery" of the economy is a wishful thinking that cannot be passed off as real. And the point is not even that the data came out worse than forecasts, but that almost 4 months have passed since the United States formally left the lockdown, and the number of unemployed still remains 6-7 times higher than the pre-pandemic level (based on the Continuing Jobless Claims indicator).

Not surprisingly, more and more analysts refuse to deny the obvious: the US stock market has completely lost touch with reality. The perpetrators of this gap are generally understandable - the central banks, which literally flooded the financial markets with money. As a result, markets ceased to perform one of their basic functions - informational. Since the current stock prices do not give any idea of what is happening in the economies.

Michael Hartnett, chief investment strategist at Bank of America, suggests using the term “fake markets” to describe stock markets today. In general, it is difficult to disagree with him. Nevertheless, we believe that sooner or later this stage in their development will pass and the markets will return to normal existence. But this will not be possible without a radical reduction in prices. So, we continue to recommend selling on the US stock market.

There was some news in favor of bulls in the US stock markets. Democrats in the U.S. House of Representatives are working on a $2.2 trillion coronavirus stimulus package that could be voted on next week. Another injection of money can lead to increase of demand in the market. Sales of new homes rose to their highest level in nearly 14 years in August which is also positive signal.