Harrison: Markets Seeing “Relief Rally” but Longterm Outlook Still Uncertain

Your Real Vision Daily Briefing for March 30, 2020

Real Vision’s Max Wiethe and Ed Harrison connect to discuss the eerie calm in the market as we pass through the eye of the coronavirus storm.

  • Markets were calmer today and signs point to the return of investor risk appetite, says Real Vision’s Ed Harrison.
  • Harrison cited the first junk bond deal to come to market since March 4 as an example that people are starting to feel willing to dip their toes in again.
  • He said tomorrow’s rent deadline will be a useful barometer for determining just how much individuals and businesses are struggling amid the economic shutdown, and that we won’t know the full effect for months.

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Now that the stimulus passed and the Fed has propped up government bond and investment grade money markets, the market is seeing a “relief rally” as it appears the worst won’t happen, Ed Harrison said during today’s Real Vision Daily Briefing.

Harrison thinks investors are starting to regain their appetite for risk and cited as an example the fact that Yum! Brands, Inc. (YUM) sold $600 million in bonds today, reopening the US market for junk-rated debt issues after being closed down since March 4.

“Their existing debt is yielding at about 6%, so now they’re going to pay 8%,” he said. “People are saying, ‘Yes, we want to buy that deal.’ What it’s saying is that people are dipping their toes into the risk pool.”

While this is a sign of more positive investor sentiment, Harrison warned that we are in the eye of the storm, and the back side of this phase is still full of unknowns. He said there’s likely to be a lot more downside risk, particularly for companies in beaten down sectors, like Chevron (CVX) and Exxon (XOM).  

The takeaway is that investors should start thinking about their shopping list rather than putting all of their capital to work, and consider dollar cost averaging into positions they like. Harrison said it is better to be late in a bear market than early when trying to time the bottom; now is the time to just come up with names you think are going to make it through.