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The Stock Market Is in Denial

The market has rebounded since the dramatic sell-off in February and March...until this week. Every Thursday, we get a look at how many people have filed for unemployment benefits. Over the past six or so weeks, we are at 36 million people who have registered for unemployment benefits. I estimate that when we get to over 39 million people, we'll have the worst unemployment in history - higher than the Great Depression. Yet, every one of those Thursdays when we would get those numbers on unemployment, the market was up on those days. There has been a disconnect or denial of the very real problems that haunt this economy. Then Fed Chairman Jerome Powell had this to say yesterday morning: "While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks," Fed Chairman Jerome Powell said in prepared remarks for a webcast event with the Peterson Institute for International Economics. The market reacted negatively to this statement as if this was the first time it was aware of any problems. Isn't it obvious that we are going to have some "significant downside risk" at best? The market has been assuming that all of this stimulus money being pumped into the market is going to save the day. Further, the talking heads on CNBC (financial television) have all decided that the bear market is over. Just like that, 36 million people unemployed is not going to be a problem? The market, like most bear markets, goes through periods of denial. Historically speaking, bear markets go through three phases of loss. I estimate that we have only been through the first phase and could be starting the second phase right now. Now is still a good time to be avoiding risk.