QuickHit: Market unknowns and apprehensions

***This QuickHit episode was recorded on August 14, 2020.

Show Notes

1:18 TN: It feels like the markets have taken a breather this week. Is that what you're seeing and also what are we waiting for?

1:28 TS: You notice all this entire summer, actually, that it's been a buy-everything market. Bonds are up, equities are up, gold's up, crude oil’s up, across the board, everything was up.

Crude oil in general, this summer has been stuck in a range. So, I guess you could say OPEC did their job. They wanted to stabilize the oil market. They did that.

Then this week we’ve seen some of the air come out of bonds. So I think, right now, it was kind of buy-everything. We had all this government stimulus. And then we have the election come up. The markets are waiting to see what's going to happen.

It just seems like there's a lot of things that are unknown. If you look at the vix curve structure you see the kink in that November area. So, the markets are forward looking at that as an unknown. So, these next couple months might be either going to be flat until we find out or it's going to get really volatile.

3:52 TN: Right, the one that really told me that we are in a pause is when gold turned around. And so, are we waiting for clarity around stimulus?

4:35 TS: I think it's a combination of things. Fed purchases have curtailed a tiny bit. We still have an unknown about what's going to happen and congress just adjourned for recess without a decision. So, we won't find out what a decision is really probably until September. That leaves a whole unknown, especially, when you're talking about that extra unemployment.

The big thing is the election because we don't know what the market's going to do. Everybody's just very apprehensive right now. They are pulling back on, their involvement in the market being that there are a lot of big unknown factors out there right now.

6:13 TN: The question really about being stagnant or rising? Or is there a possibility that we tip over and start to decline if stimulus isn't forthcoming by the end of August or early September?

6:26 TS: That's a possibility that we see a pullback in the markets absolutely. I don't think you're going to see anything, like we saw obviously back in February. But I could definitely see a market pull back just on people's apprehensions of the unknown.

6:46 TN: As you mentioned OPEC and that crude oil has settled and it's been horizontal for the past couple months. What would move that either way? Or do you think we're just also in a waiting pattern there?

7:08 TS: We're in a waiting pattern. But from what I'm seeing, the fundamentals are improving. Everybody's looking for a big crash in oil prices again but I don't foresee that at this point.

8:46 TN: Is the back-to-school factored into your expectation of rising oil prices or would that accelerate it?

9:05 TS: I believe that people will be apprehensive to send their kids on a school bus. So they'll probably be driving them to school. That's actually oil demand positive for me.

9:31 TN: Do you see any dramatic movements either way in the dollar or are we in the low 90s for the next few months?

9:46 TS: The market is so oversold at this point and everyone is so leaning bearish.

10:11 TN: Great, okay, is there anything out there that you're seeing that's really interesting that we should know about?

10:28 TS: The lumber market. I think that's definitely something to watch because the housing market is doing better than anticipated. However, we don't need things like extra ten twenty thousand dollars added on housing costs for new home builds. So, that'll put a very big strain on the market and on home builders. So that's definitely something to watch at this point.

A lot of the mills have been closed like they've been closing for the last couple of years because the demand hasn't really been that high. But with this new surge, I'm hearing that tons of mills are back up and running shifts  24/7 now.

12:23 TN: Do times like this make you concerned about the stability of the U.S. economy or do these tests make you feel like the people participating in that economy are making their supply chains more resilient?

12:44 TS: No, we are seeing some improvement on supply chains and moving forward. There are companies that are diversifying out of China. It's in supply chains closer to the U.S., Mexico, Latin America. This particular incident, this COVID really made people rethink and reassess things and I think we are seeing changes. It's not easy to move supply chains obviously, right? So, it's just going to take some time but I definitely see in the markets where companies are changing.

[CompleteIntelligence]

Time stamps for quick navigation: 

1:18 Markets had a breather this week and the “buy everything” market.
3:52 Are we waiting for clarity around stimulus?
6:13 Market pullback is possible, people are apprehensive on the unknowns.
6:46 Waiting pattern on crude.
8:46 Is the back-to-school contributing to the recovering crude prices and demand?
9:31 Any dramatic movements for the Dollar?
10:28 Why you need to definitely check out the lumber market?
12:44 Some improvement on supply chains are observed.