Leak Up, Leak Down

Leak up, leak down.  An early day rally for stocks was deflated by a leaked report that showed Remdesivir may not be as effective as hoped.  Gilead Sciences, whose stock rose just a few days back on a positive leak, led the US market down to close mixed for the session.

 

N O T E W O R T H Y

 

The glass is 1/10 full.  Though I am sure that there are some exceptions to the rule, but by now I would expect that almost everyone is aware of the fact that the nation’s economy is going through a bit of a rough time.  In an effort to save lives, we have invented a new term: “Social Distancing”, which has proven to be effective in preventing the spread of the horrid Coronavirus.  It has also proven to be effective at causing economic growth to grind to a halt, if not contract.  It is quite literally a bitter pill.  I write often about how psychology is a big driver in stocks and my favorite psychological condition to write about is “fear of the unknown” (not sure if there is actually a DSM-5 number associated with it, but just go with it).  Right now nobody really knows just how long the nation will be on one form of lockdown or another, or just how quickly the economy will recover when things improve on the health front.  That “unknown” is driving market volatility which is causing sleepless nights for even the most seasoned Wall Streeters and investors alike.  But as aforementioned, one thing that most investors DO know is that economic conditions have worsened in recent months.  In this case, the release of a weak economic number may not actually upset the market so much… of course, that depends on: just how bad.  Let’s run down yesterday’s news for illustration. The Department of Labor announced its weekly Initial Jobless Claims for last week showing that 4.427 million Americans lost their jobs and applied for unemployment benefits in just 1 week.  “Wow, that is really not good”, you say? Well, there is a bright side, if you can call it that.  First of all, economists were expecting it to be worse, with an even worse whisper number.  Eyebrows up? Second of all, and probably more important, the number is less than last week’s, which was less than the week prior.  So the trend of job cuts may be slowing.  Traders are obsessed with finding that peak marking a turnaround, and the trend so far seems positive.  The market actually rallied after the news.  By the way the weekly jobless number shows that 26 million Americans have lost their jobs in just the last 5 weeks.  That is slightly more than the number of newly employed workers since the financial crisis.  That can’t make anyone feel good, no matter how optimistic they are.  Well, I suppose that the bright side is that WHEN the virus is contained many of those unemployed will return to their old jobs.  Another noteworthy release yesterday was the Markit US PMI.  Recall that PMI’s, or Purchasing Managers Indexes, track business activity and sentiment about the current situation as well as near term prospects.  We would, or should, expect those numbers to be falling.  The Markit release is broken down into two categories: one for manufacturing and one for services.  Manufacturing has had a rough go over the last 18 months initially as a result of the trade war and a secular decline in domestic manufacturing. Services, which accounts for roughly 77% of US GDP has remained relatively upbeat through the last several years, hovering comfortably above the 50 mark which separates growth from contraction.  Services, as the name implies includes food service, entertainment, travel services, etc. See where this is going?  Yesterday’s number came in at 27.4 down from last month’s reading of 40.9.  Not only is that far below 50, but it was lower than expected and trending down. There is really nothing positive in that number other than the fact that we would expect those numbers to be weak.  Still the markets held up on those bad figures.  Oh, housing, that took a beating last month as well… also not surprising.  Around noontime, a report came out that was surprising.  Gilead Sciences has been conducting human trials on the effectiveness of its drug Remdesivir as a therapy to treat COVID-19.  A leak regarding its positive potential sent the stock soaring just a few days ago. Yesterday, a leak reported by the news site Stat cast some doubt on the drug’s effectiveness in the treatment of the virus.  The news caused the drugmaker’s stock to plunge and the markets followed. Though the company pushed back on the leak stating that the situation was mischaracterized by the report, it was not enough to calm the market’s fear.  A “fear of the unknown” as to how long it will take to curb the pandemic.

 

THE MARKETS

 

Stocks closed mixed after and an earlier rally was halted by potentially negative news on a treatment for the virus.  The S&P closed down by -0.05%, the Dow Jones Industrial Average rose by +0.17%, the Russel 2000 climbed by +1.04%, and the NASDAQ Composite Index slipped by -0.01%.  Bonds climbed and 10-year treasury yields pulled back by -1 basis point to 0.59%.  There was more optimism in the oil patch as crude futures were up for a second straight day, climbing by +2.91%.

 

NXT UP

 

– Durable Goods Orders (March) are expected to have declined by -12.0% compared to the prior month’s +1.2% growth.

– University of Michigan Sentiment may have receded to 68.0 from 71.0.

– This morning American Express bear expectations and we will hear from Verizon Communications and Freeport-McMoRan before the bell.

– WHILE YOU SLEPT, the house approved the $480 stimulus bill proposed by the Senate.  The President is expected to sign the bill today.

– Next week we will get Consumer Confidence, GDP, Personal Consumption and Spending, PCE Deflator, some more housing numbers, and the ISM PMI’s.  Plenty of more corporate earnings releases are expected next week as well. Check back on Monday for weekly calendars and details.

 

daily chartbook 2020-04-24

 

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