Last week the US Department of Labour announced that 2.5 million new jobs had been created in the US in May. This was in stark contrast to expectations that the US economy would lose 7.5 million jobs. This ‘surprise’ created media headlines worldwide but less well known was the fact that there had been 9 million jobless claims in the same timeframe of mid-April to mid-May.
Is some data more reliable than other data?
Employers currently get grants from governments to hire back employees. Millions were hired, sometimes when there was no need for them. On the other hand, millions of unemployed stay at home because the temporary unemployment benefits are higher than their previous salary.
Is the employment market improving or not?
Airline stocks crashed 70-80% in a few weeks and many considered the sector to be dead. They then bounced back 80% without the airlines even selling any plane tickets. The price of oil plummeted to minus $30 a barrel and then skyrocketed to $40.
Is it real?
It is really hard to see where things stand in the short term and how markets will develop. The way forward is not clearcut.
However, what we can see is retail investors joining the party at the very late stage of this (temporary) recovery, buying volatile assets with a high potential to go down when the next correction comes. All the indicators suggest that this correction will come and that it could be within the next few weeks.
The current market environment should be seen as a minefield. You shouldn’t try to reach the other side by running, rather you should go slowly, considering each next step carefully so that you can reach the other side safe and sound.
From a risk management perspective we decided that both for our own internal risk management, as well as the safety of our clients, we would temporarily cap the leverage at X2 for stocks.
This is the time for true investors to shine, as they did in 2009. This means taking care to pick the stocks of companies that are financially sound and likely to enjoy strong performance over the longer term. It also means focusing on the basics of investing: remembering the importance of diversification and taking a responsible approach to leverage.