Stock Market Fall Has Some Thinking ‘Covid Stimulus Trade’ Now Dead

The risk is to the upside, says Barclays Capital.

Everything is done. Gold is down. Bitcoin is down. Stocks were largely down last week. The Covid Trade stocks — restaurants like Cheesecake Factor and amusement parks like Six Flags — were down. After quite the run for those stocks, word on the Street is that investors are putting money into cash and Treasury bond funds, building their “blood in the streets” war chest just in case things fall a bit more into the spring.

Baron Rothschild, an 18th-century British nobleman and member of the Rothschild banking family, is credited with the “blood in the streets” saying that is so popular among investors. He said, “Buy when there’s blood in the streets, even if the blood is your own.” I think another version, you buy at the sound of cannon fire.

For what it’s worth, a Boston Consulting Group survey of investors predicted a 500 point drop in the S&P 500 at some point in early spring, before recovering to over 4,000 points over the next three years.


But before we get too bearish, here is what we can hang our hats on:

Retail investors: we’re not going away. Flush with cash, either from unemployment checks or stimulus … [+]

In the Money USA

Personal income rose 10% in January thanks to stimulus checks, Payroll Protection and other programs designed to offset the economic pains of lockdowns. The savings rate rose to 20.5%, while compensation rose a modest 0.7% monthly and government social benefits rose 53% over December levels due to year-end stimulus check.

Some of this money is clearly finding its way into the stock market with retail investors now the infamous little darlings of CNBC.

Barclays economist Michael Gapen says he expects Congress will pass another “substantial” pandemic aid deal worth about $1.4 trillion by mid-March. And that means American households will have the cash they need to pay debts, shop, and invest.

Consumer spending, however, is still down modestly, though this is mostly due to travel and entertainment restrictions. People are not flooding into NBA games, spending nights in hotels, and going to bars on game night, for example.

All of this is what has the market worried about inflation, of course, which is what is propelling Treasury yields to rise to some extent.

On the other hand, these savings are going to find their way into the market as new investors have been treated quite well over the last year, whether they were holding defensive dividend ETFs or Bitcoin.

Barclays is estimating a 4.1% GDP growth this quarter, up a tad from their previous estimate of 4%.

Europe is a bore so let’s look at…

FTSE Europe has outperformed the Dow so far this year, but is now moving in sync. Emerging markets … [+]

Japan: Vaccines Are Working

Japan has been an underperformer in Asia, losing out to the MSCI Asia Apex 50 Index by a long shot.

But as a core economy struggling through the pandemic, SARS2 infections are falling fasts and the government decided to lift its state of emergency in six prefectures accounting for 24.8% of national GDP.

The state of emergenc began on January 8 of this year and will continue for Tokyo and its neighboring three prefectures, which account for 33.6% of national GDP, but judging from current conditions it will likely be lifted for these regions by this weekend.

The vaccine rollout has just begun there, so they are a little bit behind the eight ball on that.

Barclays’ baseline outlook assumes Japan achieves herd immunity by end-2021 with a vaccination rate of around 90%. They expect real GDP to contract -9.5% in the first quarter, showing negative growth for the first time in three quarters with consumption slumping in services because of lockdowns. But come the summer, economic activity is seen normalizing again and Japan is expected to grow by around 4%.

The China A-shares have outperformed the S&P 500 over the last three months, but within the big 50 … [+]

Big China

This week, the National People’s Congress will hold its annual meeting where the Premier Li Keqiang will deliver his Government Work Report. This is where Wall Street gets the idea of where China is going to direct its state-controlled capitalism again this year.

Key areas investors will be watching for is Beijing’s GDP growth target for 2021 (Xi already said 5% so I suspect it will stay at 5% at a minimum); details of tax policy; and any new free market reforms that will get the market excited about the A-shares.

The A-shares have been underperforming this new Asia-wide top 50 ETF I just discovered, ticker symbol AIA. I think this might be the only ETF worth owning for Asia macro. By I digress. (Here’s what’s in it and I do not own it…yet.) I am waiting for the STAR market ETF to come to America. That will be a screaming buy. The STAR Board is China’s Nasdaq NDAQ -1.4%, only it is more loaded with latent semiconductor plays.

What crash? Flush with cash, wealthy China investors buying more and more. GDP growth rates expected … [+]

On China growth in the near-term, Barclays Jian Chang says she thinks that at the state level, provinces are ranging from 6% GDP growth to 10%. That’s a lot better than Xi’s call.

“We see upside risk to our China’s first quarter growth,” she says.

And that is arguably the biggest bull view you can get. More upside than down in the weeks ahead.

I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big


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