In Mid-March, when the lockdown was just two or three days old, I chatted with a very “in-the-know” friend of mine who said that, based on what he could gather, the economy should be shuttered well into July. I shared this with my family, who thought it was just absurd, and that it would never happen.
Well, this very morning, I see this:
And, let’s face it, no one is more compelled to be overly-optimistic than Mnuchin, so when I read a headline like that, I assume things won’t be normal until next summer. Suffice it to say that my friend was correct in mid-March.
Given the fact that the economy is effectively turned off, where should the stock market be? Well what if I told you we were at this valuation for the SPY:
“Wait a moment!” you say, “That doesn’t look like the stock market at all!” Well, it actually is. The chart above is the SPY with the most recent price point at present valuation levels. All I’ve done is chop off the recent portion of time showing the plunge and bounce. This actually is where the market is at, months before anyone had even heard of Covid-19. In other words, when the economy was actually healthy and the unemployment rate was close to 3%.
So what’s causing the persistent explosion in equity prices? A daily drumbeat of bad news, of all things. Like this beauty from this morning:
We have truly and utterly entered the Twlight Zone.
