“America’s 20 trillion economy will rebound from third quarter and shock the world in the fourth quarter. The stock market will make a new high this year. Jamie Dimon, chairman of JP Morgan, a staunch Democrat, says U.S. economy will witness “quite rapid recovery” from Coronavirus pandemic”, says the author.

 

 

The stock market is a leading indicator of American economy.  After President Trump was elected in 2016, the Dow Jone’s Average has jumped from 18,000 to almost 30,000.  Because of Coronavirus and subsequent locked-in, the market plunged back to 18,000 by March 23, 2020.  From March 23, 2020 to May 27, 2020, the Dow Jone’s has recovered 7540 points in a matter of two short months.  This kind of rapid recovery has been unprecedented in the history of the stock market.   This is highly remarkable and a very significant factor to gauge future economy.  The NASDAQ dominated by trillion-dollar technology companies (Microsoft, Apple, Amazon, Google) have performed even better than the Dow Jone’s.  The Nasdaq is now only 5% from its all-time high reached in February before the Coronavirus.

Never before, the stock market has performed breaking all past records.  President Trump and his policies have been credited by the investors and all Americans who have their pension funds invested in the market (401-K).  Once the market performs, nobody can challenge because all Americans believe in higher wages and prosperity.  Americans are wondering how the market could go up so big and so rapidly when the economy has been shut and the unemployment has exceeded historical record of over 20%. How can the market go up when the business of travel, restaurants, retail sales, manufacturing, and others have been stopped because of locked-ins?

The Federal Reserve cut the interest rate to zero per cent.  The Federal Reserve is an independent agency.  But President Trump pressured its Chairman Powell to lower the interest rate to zero.  Now he has asked him to lower it further into negative interest rate so that it will grow the economy.    The Federal Reserve has flooded the financial markets, commercial and investment banks, asset management firms, and large hedge funds with approximately 7 trillion dollars.  What the Fed has done is unprecedented.  Powell, the Fed Chairman has assured the captains of the industry that the Fed will employ all tools available in its hand to help the economy grow.   With generous tax cuts and heavy deregulations by President Trump, potential for corporate profits have expanded.   In addition, President Trump’s recommendation to the Congress to approve $3 trillion in fiscal support to all Americans, small businesses, and other businesses in distress have helped enormously in recovery of the economy.   Generous unemployment compensation of $1200 per week has created unbelievable security and is perking the economy.

Americans received $1200 each and the government postponed filing of tax returns to July from April 15.  Proof of climbing retail sales is the result of President Trump’s fiscal support.  President Trump and the Congress are working on issuing second installment of $2000 each to drum up the economy.

The combined support from the Fed Reserve and the Congress is equal to 50% of America’s annual GDP of 20 trillion dollars.   I would speculate that a substantial amount from this has gone into investing in stocks.  Can we not ask how can the stocks skyrocket like this when the economy has been shut down and more than 40 million are unemployed?    When the real economy is not generating any income based on productivity, how can the stock go up?     President Trump has said that the economy he created is a solid and sound economy.  Therefore, when the locked in is over, the economy will rebound and the stock market will go up like a rocket.  Proof of the pudding lies in the eating of it.  It appears now that President Trump’s prophesies are coming true.

Has the Fed Chairman Powell succeeded in playing magic?  Or, is this artificial? Who knows?  Let me analyze the comments of some vehement Democrats, economists, and industry captains.

JPMorgan Chairman, Jamie Dimon, a staunch Democrat and a candidate for the Secretary of the Treasury in Biden administration stated that the government has been pretty responsive, big companies have the means, hope we keep the small companies alive.”  “growing stocks” from the Fed Reserve had helped small business.  He said the U.S. economy could see a rapid recovery in the 3rd quarter.    He said: “you can already see the positive effects of the current opening, at least for the economy.”    The same Jamie Dimon has been highly critical of President Trump just for political purposes.  But when his own company and stocks of major banks and financial firms go up, he cannot but tell the truth.

Michael Darda, MKM Partners Chief Market Strategist and Chief Economist said: “The market has been making a V-pattern upward and there has been a tremendous amount of skepticism around that but we are just starting now to see some evidence in the data turning some better than expected Housing numbers.  As reopening gets underway, virtually all states now we are starting to see activity bounce off of very low levels.”

On Wednesday, May 27, the Mortgage Bankers Association reported a sixth straight weekly rise in mortgage applications.  Data released Tuesday showed NEW HOME SALES in April topped estimates.  Sales of new U.S. SINGLE FAMILY HOMES increased by 623,000 in April, beating estimates of 490,000.

Wharton School of Business Professor Jeremy Siegel told that new stock market highs this year is a ‘REAL POSSIBILITY’.   Absent a second wave of Coronavirus later in the Fall, it is “even a likelihood that we will reach “fresh record highs.”     This kind of over optimism from conservative and liberal economists is unprecedented.

“One of the unfortunate things about the lockdown is we have actually improved the prospects of the very companies in the stock markets.” Siegel added.     “In fact, given no serious second wave, which could mean just effective therapeutics without even a universal vaccine, my feeling is it is even a likelihood that we will reach fresh record highs.” Siegel said.

(The author is a former President & CEO, First Asian Securities Corporation, NYC.  His successful trading strategies on the day of 1987 stock market crash was highlighted by the WSJ.  He lives in Scarsdale, N.Y. He can be reached at vpwaren@gmail.com)