New Highs, or a Correction First?

by JDH on June 6, 2020

Pick a chart, any chart.  How about SPX:

From a high in mid February, the market crashed to 2,200, but amazingly it has recovered almost all of those losses, and is now back to almost 3,200, the same level it was at the end of January.  So, after a massive crash, the market is essentially flat on the year, and we are only in the first week of June.

How is it not possible for the markets to hit new highs by Canada Day?

Or Labour Day?

Or Labor Day?

Nothing goes up in a straight line, so a pause seems inevitable, but if the government keeps pumping money, how can the markets not go higher?

I realize that the “markets” are not going higher; only a very limited number of stocks are making new highs, but the result is higher markets.

The economy is shut down, and yet the markets are up.


It could be that COVID-19 was priced into the crash, and the inevitable recovery is reflected in recent market activity.  That makes some sense.

It is becoming obvious that our government leaders don’t have the faintest idea what’s happening; every move they have made has been wrong.  They allowed travel to continue when they should have stopped it.  They said masks didn’t work, when they should have told everyone to start making them at home.  They left nursing homes open, and allowed workers to work at more than one home, insuring the spread of the virus.  They closed parks and open spaces, instead of encouraging people to go outside to open spaces.

If you confine people to their homes for long enough, anger boils over, and you have riots in the streets.

Good job, gubermint!

But it now appears that the sheeple are waking up.

They are realizing that the virus is very serious if you are old, or have other issues, and are trapped in a confined, indoor space where the virus can circulate.  If you are young and healthy, or outside where the sun is shining and the air can circulate, it’s not a big deal.

We have 14 million people in Ontario.  Excluding deaths related to Long Term Care homes, 848 people have died.  An additional 1,524 deaths have occurred in LTC homes.  Those are serious numbers, but it’s clear that the LTC homes must be our focus, and with rapidly declining deaths, and new cases, it’s time to re-open the economy.

Not wide open, and not without sensible controls.  Office buildings won’t open yet, but retail stores, hair salons, and malls can and should be open.  Destroying the economy, and the lives of millions, is not worth it.

It would appear that everyone agrees with me, so it will happen, so the economy will recover, and that’s why the stock market is recovering as well.

(Or perhaps the government has printed so much money that it had to go somewhere, and that’s what’s happening).

There is a US election this November, and it appears that Trump is headed for a massive landslide win, again, provided the economy is open, so the powers that be in the US will do whatever is necessary to make that happen.


Here in Canada, ZEB.TO, the Canadian Bank Stocks ETF is booming.

But aren’t the banks going to lose a bunch of money?  Yes, but if the economy reopens, the losses will be a lot less than expected.

Mortgages are safe, because they are CMHC insured.

Government assistance, like the CERB, has allowed many borrowers to keep making payments.

Everyone else has received deferrals, so again, if the economy reopens, those borrowers will start paying again, and the banks will make even more interest, because they continue to accrue interest even during the deferral period.

We are in a deflationary environment, so all of that government money printing has not caused inflation, so all is good!

Buy ZEB.

That’s how I see it, as of today.

The weather is good.  Enjoy it.  Stay safe.