Investors taking direction from Apple CEO Tim Cook will likely conclude that the worst of the stock-market rout is over. | Image: AP Photo/Vasha Hunt
- Executives of three tech giants see signs that business is starting to come back to life.
- The Federal Reserve has exponentially grown the monetary supply in the last few weeks.
- With the economy showing signs of recovery on top of the Fed’s liquidity boost, the stock market has likely bottomed.
The S&P 500 has made a sharp recovery after plunging from the coronavirus-induced selloff in March. Analysts are scratching their heads as the bellwether index is up over 33% amid record unemployment and business closures across multiple industries.
While the economy looks awful, there’s reason to be optimistic. Executives of tech giants Apple, Facebook, and Google say that business is starting to pick up, providing evidence that the bottom is in.
Big-Tech Executives See Demand Returning
The coronavirus pandemic forced the U.S. economy to come to a near standstill. But tech executives see evidence that the economic downturn has hit rock bottom.
Apple chief executive Tim Cook said April was a good month for the iPhone maker:
There was a significant, very steep fall-off in February. That began to recover some in March, and we’ve seen further recovery in April. So, it leaves us room for optimism.
Facebook also sees signs of recovery. During its recent earnings report, the company said:
After the initial steep decrease in advertising revenue in March, we have seen signs of stability reflected in the first three weeks of April.
Also, Google-parent Alphabet said advertising revenue is inching up after a sharp decline in March:
The decline in our Search and other ads revenue was abrupt in March, and although we’re seeing some early signs at this point that users are returning to more commercial behavior, it’s not clear how durable or monetizable that will be.
With states loosening quarantine guidelines, the economy’s outlook is no longer as bleak as it was previously. Add to that record liquidity from the Federal Reserve, and you have the formula for a stock market bottom.
The Fed’s new money must go somewhere. | Source: FRED
It’s a Bad Time Short the Stock Market, Says Hedge Fund Legend
It’s not a good idea to fight the Fed, especially now that fundamentals are playing catchup. In a CNBC Fast Money interview, ex-hedge fund manager and Galaxy Digital CEO Mike Novogratz says it’s dangerous to be short on stocks:
I think we’ve been in a tug of war between liquidity on the one side and fundamentals on the other. Liquidity is winning…It’s very dangerous to be short on [stocks]. The charts look like they’re going higher. The cash flows look like they’re going higher
Another factor that can boost the stock market is the disposal income of Americans. Novogratz says that due to all the stimulus, disposable income is higher this year compared to last year.
Wharton professor Jeremy Siegel echoes Novogratz’s view not to fight the Fed. He says that the stock market has already priced in surging unemployment and business closures. With that in mind, he says that the March bottom is “definitely going to be the low.”
S&P 500 is grinding higher. | Source: TradingView
Siegel emphasizes that Fed-induced liquidity has grown exponentially in weeks–and that’s bullish for the stock market:
That liquidity, once confidence begins to recover, that’s going to go in spending and in the stock market.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in any of the companies mentioned.
This article was edited by Sam Bourgi.
Last modified: May 12, 2020 2:22 PM UTC