Happiness Is

Happiness is.  Stocks rallied on Friday as investors could not contain their inner optimists. Many are hopeful that an end to the national lockdown is near and that promising results from a Remdesivir trial might hold the key to beating the pandemic.

 

N O T E W O R T H Y

 

I wanna’ believe.  Stocks have been going up and we are all relieved… and perhaps secretly hopeful that the worst in the markets is behind us.  Stocks capped off their winningest 2 weeks since 1930.  The Dow Jones Industrial Average is +30.3% above the low it hit less than a month ago on March 23rd. The index is around -18% below its all-time high leaving the bulls salivating and hopeful for a victory.  Bears on the other hand have not quite headed for the hills yet as they too are hopeful for a victory.  The bulls are counting on the massive amount of government stimulus to carry the US economy through the thick of the financial impact from the virus.  Also in their favor is that most economists believe that the negative economic impact will be strong but short-lived, contained to two financial quarters.  The bears are banking on the fact that we are just at the tip of the iceberg of bad company and economic news.  Last week China released economic results that suggested that it experienced and annualized GDP decline of around -34% as a result of the virus.  The US could experience even a deeper drop as China was able to contain its outbreak relatively fast. Bears also know, based on history, that bear market rallies are very strong and that sizable market drops occur in waves, suggesting that stocks could still retest lows before finally turning around.  The fixed income markets are in something of a Twilight Zone. Despite treasury yields being at all-time lows and a sharp increase in ratings downgrades with the potential for a growing number of defaults, investors continue to buy bonds.  The past few weeks have seen a massive spike in bond offerings with companies attempting to take advantage of the low interest rate environment to get desperately needed cash in their coffers.  Under normal circumstances, this environment would not exist but for the Federal Reserve, who is single handedly holding up the bond market buying vast amounts of debt of all types and all qualities.  Bond bears are waiting in the wings, ready to pounce the minute, if not second, that the Fed even hints at slowing down the asset purchases, though the moment seems far in the future at this point.  All in all, there appears to be something in this tumultuous market for everyone.  Equity bears know that the next six months will be rocky ones with many short and mid-term opportunities.  They know that when we emerge from the economic pause that things will look different for many industries and companies… it will not be business as usual.  The bulls know that the unprecedented stimulus that has already been pumped into the economy combined with subsequent stimuli yet to be applied will help to propel the economy to new heights once things clear up.  It is clear that the next 2 quarters will be fraught with lots of feel-good days for each side as we make our way through the thick of it.  Long term investors focusing on 2021 and beyond can root for the bulls to win.  Speculators, as always, will have many good and tough days ahead.  The week ahead will be an interesting one with some 93 S&P500 components expected to release earnings.  It will be an interesting mixture of companies with some who have been hard-hit by the virus (airlines including Delta, Southwest, and Alaska) and others who have benefited from it (Netflix).  On Thursday, we will learn about how many Americans applied for first time unemployment last week. Investors are hopeful that the job-losses have peaked a few weeks back at 6.8 million with last week’s initial claims coming in at 5.245 million.  This week’s number is expected to come in at 4.5 million.  Both bulls and bears will be watching closely this week, let’s hope for the bulls.

 

 

THE MARKETS

 

Stocks rallied sharply on Friday with the buying intensifying into the close.  Hopes that Giliead’s Remdesivir as a potential treatment for COVID-19 combined with a concerted effort to get America back in action fueled the optimism.  The S&P500 rose by +2.68%, the Dow Jones Industrial Average traded up by +2.99%, the Russell 2000 jumped by +4.33%, and the NASDAQ 100 climbed by +1.38%. Bonds slipped for only the second time in April and 10-year treasury yields advanced by +2 basis points to 0.64%.  Crude oil traded down but the energy sector traded up on hopes of further supply cuts by OPEC+ and US shale producers.  WHILE YOU SLEPT crude oil sunk to lows not seen since 1999 as demand diminishes and storage facilities approach capacity.  WTI futures are trading at $11.87 / barrel, down by -35%.

 

NXT UP

 

– Chicago Fed’s National Activity Index is expected to be -3.00 for March compared to February’s 0.16.

– The week ahead will include lots of earnings along with housing numbers, Durable Goods Orders, Markit PMI’s, University of Michigan Sentiments, and some regional Fed reports.  Please refer to the attached economic and earnings release calendars for details.

daily chartbook 2020-04-20

econ numbers 4_20

earnings releases 4_20