The two narratives driving the market
You may be finding trading frustrating right now, especially if you are active from a day to day perspective. Markets are starting risk on only to finish risk off by the end of the day. It is a repeated pattern to see.
So, let's take a moment to see why that is.
There are two narratives driving the markets that are in juxtaposition to each other. These are what I am calling for this article the 'happy days' and the 'sad days' narrative.
The happy days narrative
Growing up I loved the program happy days. The character I always most loved was the Fonz. He was effortlessly cool and though he rarely did anything of note, just being the Fonz was enough. With the Fonz everything was going to be a ok. Well, this is like the market happy day's narrative and the Fonz is a bit like the Fed. With the Fed everything will be just fine. A vaccine is coming, the Fed will fill any gaps with extreme stimulus measures, and life will carry on as before. Happy days.
The sad days narrative
Another character I enjoyed as a young whipper snapper was He man. In He-Manhis arch nemesis was Skeletor. An embodiment of death and destruction. Well this is a bit like the market's sad day's narrative. Covid-19 cases are rising and the US is in a second wave, and will this not result in further shut downs and job losses? Sad days.=
The key questions
- Are deaths a better gauge to COVID-19 seriousness rather than infections?
- Or are hospitalisations the real mark we should be focusing on?
- How close are we really to a vaccine?
- Are the 'second waves' in South Korea and Australia more concerning than in the US?
- Will re-openings carry on, albeit at a slower pace, or will they stop
- Is the virus actually airborne and do droplets hold in the air for hours? If this is the case then it proves greater problems for the re-opening narrative.
You can see now why the market is choppy. I find myself changing and switching my view on how things are going day to day. So, in times like these, wait for the clear narratives to develop before frittering away your cash.
