Virus Spikes vs. Helicopter Money: Guess Who the Market’s Betting On?

Shah Gilani|July 6, 2020

Last week, equity markets roared back to life in a shortened trading week. The Dow Jones climbed 3.2% on the week, the S&P 500 climbed 4%, and the Nasdaq Composite climbed 4.6%.

That healthy rise came on the heels of the previous week’s losses, which came on the heels of the previous week’s gains, which came on the heels of the previous week’s losses. Which collectively amounted to a lot of sideways, go-nowhere action for the Dow, the S&P, and the Russell 2000.

But not so for the Nasdaq Composite, which just keeps defying gravity.

The back and forth in equity markets has been about risk-on versus risk-off, which has been about Covid-on versus Covid-off, which forces the fight between stimulus-on versus stimulus-off.

Of course, the Nasdaq Honey Badger don’t care; it keeps eating capital inflows and getting fatter.

As far as on versus off bettors, Covid-on is winning. It is threatening state, city, and local “rollbacks” and is likely impacting economic recovery efforts.

But that’s driving the stimulus-on crowd into believing, with good reason, we’ll get another huge economic relief package and equity markets will leg higher because that’s what they did on the last round of helicopter money being dropped far and wide.

The Democrat House already passed a new $3 trillion stimulus bill last month, the HEROES Act, which stands for Health and Economic Recovery Omnibus Emergency Solutions. How do they always come up with those great acronyms?

The Senate’s crafting their own stimulus-on version, and the two will eventually come to pass.

There’s no doubt we’re getting more helicopter money; people and the economy need it. The extra unemployment benefits, the additional $600 a week claimants were getting, ends this month.

Another reason we’ll get stimulus 2.0 is the number of people not working looks like it’s getting better… but then again, doesn’t.

Yes, the unemployment rate came down to 11.1% in June from May’s 13.3%, that’s a positive, if you believe it.

What’s absolutely whacky, in a scary whack-a-mole kind of way, is the nonfarm payrolls number for June showed 4.8 million jobs came back online; that’s on the heels of 2.5 million jobs added in May, supposedly putting some 7.3 million people back to work out of the more than 22 million who lost jobs since February.

But this doesn’t make any sense because the weekly continuing unemployment benefit claims number showed 19,290,000 people were still collecting unemployment benefits.

However you slice or dice the numbers, what looked promising isn’t any kind of guarantee, especially when the bulk of workers getting jobs were, for both months, in the leisure and hospitality industry – which is now facing shutdowns again.

The economy could see a reversal of fortunes.

Chalk up another victory for Covid-off.

As rollbacks roll through the country, as significant spikes hit Florida, Arizona, Texas, South Carolina, California, and Montana, as more jobs could be lost and consumers’ optimism gets tested, bank analysts are revising their growth prospects for the year, downwards of course.

So, of course we’ll get stimulus. But not for those reasons.

There’s an election coming, that’s why we’ll get more stimulus, if not this month, eventually, but before the election for sure.

Where’s a lot of the stimulus money going to end up? In the market, the stock market.

That’s why last week was a risk-on week.

That’s why the futures are up big this morning,

That’s why we may be breaking out of the doldrums we’ve sailed into.

That’s why the bias is now to the upside.

And that’s all good. Play it that way. Because the trend is your friend.

Just remember, there’s an election coming, and that could change everything.

Until then,

Shah Gilani