Last Tuesday through Thursday, the markets were on a tear. Action was being taken against the coronavirus pandemic, the President was signing the stimulus bill that Congress had bickered over, and Boeing Co. (BA) jumped 70.5%.
For the Dow and S&P 500, it was the first three-day win streak in months.
Then come Friday, markets tumbled. Still, the Dow was up 12.8% for the week, the best weekly result since 1938.
The big question for April and beyond is whether the winning streak of the middle of last week will carry on, or whether Friday’s tumble is a sign of things to come.
Both narratives have their backers. You have the ultra-bulls on TV, in newspapers, and online saying that the worst is over, the virus isn’t all that bad anyway, and so much liquidity and stimulus has been pumped into the system that will find its way to the stock market that stocks simply have to go up…
And you have the ultra-bears who say the impact of the pandemic is worse than we thought, and could get catastrophic. In their view, this isn’t going away any time soon.
On each side, the believers fully expect not only to be right – but also that the market will act accordingly any day now. For the bulls, everything is OK and getting better, so markets will spike upwards any day now.
For the bears, we’re on the express elevator to an 80% drop, no question about it.
But the Reality Gap here is that, while the bullish believers are convinced they have it right, so do the bearish ones.
And while those two forces battle it out, we’re not going to get either of their outcomes.