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.

“Won’t Back Down”… The headlines aren’t perfect, but it seems investors exhausted by selling and fed-up with bad news are ready to stand their ground. The excuses were there for US indices to have a down-day (yesterday’s +7% surge, for one) but as we enter the last 2 hours of trading the S&P is hanging tough. Recent reports that virus cases in Italy continue to drop off and that China’s Wuhan travel ban is to be lifted provided fresh bursts of hope even as New York confirmed its deadliest day yet. Good news is good news, but with so much uncertainty remaining around a subsequent economic recovery (not to mention a painful earnings season fast approaching), this mini-bull run may be “Runnin’ Down a Dream” a bit too early…