Stocks, Output, Employment, Debt: A look at 08/09 and current data

Damn, I missed the 20% upswing.

Shame. Did you also participate in the 30-50% drop down?
(scroll down for stock examples: Apple, Google, Waste Connections, Royal Bank, CIBC, Enbridge, Fortis, CN Rail)

A bear market is known for one thing: volatility.
It’s great for trades — if you can time it right.
We WILL see a lot more volatility before we bottom.

To think otherwise is ludicrous at this point. We are facing a:
– Global economic shutdown of at least one month, producing a:
– Supply and demand shock at the same time, exacerbated by:
– Immediate and significant job losses.
– Oh, there’s also a pandemic and oil price war going on.

Here’s some data to digest:

Output Gaps

Source: RBC DI

Employment

While unemployment rates in the US and Canada have been trending lower, we are about to see a massive spike unlike anything before. In Canada, 1 MILLION people have applied for Employment Insurance in the past two weeks, and this number is set to increase drastically. We will see a fall below 08/09 levels, which for Canada was 61% and US 59% employment rate.

Household Debt

71% of consumer debt in Canada are mortgages. The Canadian gross debt service burden (eg. credit cards, LOCs) have increased in recent years but declined in the US. Needless to say, there WILL be an impact on housing as people fail to pay rent, mortgages, bills and are forced to sell. These events take time to manifest.

Stock Volatility: 08/09

If we’re going to use history as a guide, then let’s see what 08/09 charts tell us how stocks will behave in times of great uncertainty. The answer is this: VOLATILE. There will be significant down days, significant up days, and most of all a W pattern at a minimum. This means if you can time the bottoms, you’re in for a handsome reward. If you can’t, enjoy the ride down, because it’s coming. The 2020 recession is full of unknowns and will produce a W pattern with absolute certainty. Don’t rush to buy stocks on the upswing. Wait for the next leg down.

Tech Stocks: A large W

Banks: EXTREMELY VOLATILE — but wait for SECOND LEG DOWN

Industrials: same thing. Wait for second leg down.

Utilities: Perhaps the same — second leg will happen.

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