Oil’s Well That Ends. There’s a 0% chance we have seen the end of the oil storage saga that has plagued the globe of late. Crude +21% today means nothing when the price is still below $15 and the buildup continues to hit new records (and USO continues to plummet) . If this continues, the loss of revenue is likely to create widespread financial and political pain for countries reliant on petrol production.
‘I’n a ‘B’ad ‘M’ood – If you were able to pick up on those not so subtle clues, the market looked to recover from Monday’s slide lower and pinned some hopes on the first big tech name to report. Granted this earnings period will be a giant finger in the air (not that one although by the time the season is over…) but IBM’s report didn’t live up to the challenge. One particular comment about a ‘a shift in client priorities toward the preservation of capital’ seemed to spook investors and cause a selloff in a crowded trade that had been relatively immune. No longer, at least not today. FANG has been caught up in the momentum unwind but with a whole lot of Netflix and Chilling going on over the last 5 weeks, the streaming service gets a chance to turn the tide as they report post the bell.
Hold Your Horses… 3:50pm on Friday: the initial imbalances for close are posted, providing the extra boost to push the SPX back above its 50-day avg in an orderly +2.7% up-day led by Value sectors. Sounds like the perfect platform for the stocks to continue their rebound, right? Unfortunately not, as markets open the week by once again digesting a harsh dose of reality. Front-month WTI crude futures nearing complete collapse will certainly suck the air out of the room, but all things considered the damage is not too bad. Luckily headlines on the virus front continue to shows signs of easing as well, with the growth of cases decelerating in New York, Italy, and France (amongst others).
Glass Half Full of FOMO… In such uncertain times nearly every set of headlines is up to interpretation, and today is no different. Caveats are required as President Trump unveiled the bones of a plan to re-open the US economy (but left a lot of questions left unanswered) and health officials released some positive treatment results from Gilead’s remdesivir (which the co itself cautioned is anecdotal), but investors are choosing to look on the bright side (as they have more often than not as of late). Unlike much of the week however, Tech and Healthcare are taking a back seat to Value sectors like Energy, Banks, and Autos as optimism and certainly a healthy serving of FOMO take hold on a Friday.
Eye of the Tiger… Stocks have refused to give up today. Despite two selloffs –the first after 22m Americans reportedly filed for unemployment (erasing all jobs created since The Great Recession), and the second after Gov Cuomo announced an extended lockdown until at least May 15th , the S&P continues its desperate fight for green. Retailers and Healthcare are providing some of the muscle, but lest we forget Netflix (+3.5%) and Amazon (AMZN +4%), who continue to take over the world with new highs again today. Another stock of note — Morgan Stanley (-0.4%) bucking the bank trend (JPM -4%, GS -2.2%). The company saw good underlying performance and has limited its ongoing exposure to credit risk, allowing it to outperform its counterparts. It will be interesting to watch the rest of today play out – Energy and Banks dragging the clawing S&P.
Reality Check…. If last week felt like the market was cherry-picking the good in headlines, today’s sell-off is a logical response to an inevitable dose of reality. Optimistic attitudes allowed the S&P to quickly retrace half of its losses, but that’s only created an opportunity to pause and more carefully assess the underlying damage done to the economy (and earnings), and the picture isn’t looking quite so rosy. Perhaps it’s just a temporary pullback, but unnerving signs like DXY pushing back toward 100 and small caps sitting out from the recent rebound (RTY -29% ytd) leave the unfortunate impression that the damage done beneath the surface hasn’t fully come to light
We’ve Never Been Here Before – And yet…at the same time, we have. The cause may have been different and to be fair, unlike anything we’ve ever experienced previously, but the effect is looking awfully familiar. The economic damage remains incalculable – the IMF projected a global contraction of 3% – for context the world economy shrunk by less than 1% during the GFC of 2008-09. But while still well off highs, the market has again shown its remarkable resilience, now +34% from the lows a mere 3 weeks ago. With the efficacy of the Fed fireworks still in question, the only guide has been the rate of coronavirus infections or deaths – with those seeming to level off, its been enough of a catalyst for the FOMO crowd to pile in. A significant increase in volumes would be a nice accompaniment.
Monday blahs – US markets posted solid gains last week, but as a new earnings season starts, investors are taking some money off the table. JP Morgan, J&J, JB Hunt and Wells Fargo report their Q1’s tomorrow, followed by BofA, Citi, Goldman and UnitedHealth Wednesday. Retail (thanks to Amazon +4.4% and eBay +2.2%) and Food (Walmart +1.6%) are the only sectors in the green, with Homebuilders (-6.9%) and Banks (-3.9%) underperforming. With many international markets closed for Easter Monday, US volumes are tracking down 16% versus their 20 day average.
Easter Rising… Ahead of the long holiday weekend US indices are continuing their attempt at a resurrection. Hope springs eternal (for the moment…) as signs of flattening curves in virus hotspots and proactive planning around how / when countries can reopen their economies have allowed markets to overcome their usual end of week jitters. Still there’s more than a few bunny hops to go before all the damage is undone, with more than 80% of S&P names yet to reclaim their 200-day moving average. Not to mention the week’s gains have largely been carried on the back of some of the easier wins: beaten-down sectors Autos, Banks, and Retail continue to outperform today
The Stim, the Curve, and the Potential – US equities continue to add to their gains post the European close. The potential for a peak in new US cases leading to the potential of some easing of the quarantine restrictions, is helping investors feel better about adding to their positions. Also helpful, another stimulus package ($250-500bn) for small businesses could be voted on before the weekend. Granted the markets have a different mindset in the final thirty minutes of trading. But as of now, the SPX looks safe to hold the 2650 support level that was created Monday.