One and Done

One and done.  
Stocks surged yesterday emboldened by the aggressive Fed and encouraging news on the vaccine front. Traders woke up to surging markets and news from a once-small biotech firm sent the indexes ablaze with hope.




Sorry to be “that guy”.  I am looking forward to getting back to my favorite ramen bar in midtown and catching a Broadway show with my wife.  I even secretly long for the hustle and bustle of the city streets, which seem to come alive as the temperatures start to rise.  Even more importantly, I would like to rid myself of that terrible feeling that I get when I see the unemployment numbers or when I read the details of the COVID-19 destruction every morning as I prepare my daily reports.  What it comes down to is that we all just want to get back to normal.  If I cut myself off from all of the past week’s news and just turned on my Bloomberg terminal yesterday morning I might have thought that things were actually back to normal.  Airline and Cruise company stocks were surging while Energy was the best performing sector.  In contrast the worst performing sector was Healthcare, and Consumer Staples like Campbell Soup, Clorox, and General Mills topped the biggest loser category. Similarly, recent go to’s like Citrix Systems, Domino’s Pizza, Activision Blizzard, and Netflix got the cold shoulder.  It was a sell-the-lockdown stocks and buy-the-future kind of day.  The primary drivers of yesterday’s rally were two juicy bits of news.  The first came from a Sunday night TV interview with Chairman Jerome Powell (reported here yesterday morning) in which he warned that the economy would experience a slow recovery which would last into 2021… if there was not a resurgence.  More importantly he said that the Fed has plenty more ammunition to stimulate the economy beyond its already epic support.  The second bit of news came from Moderna, the Massachusetts-based biotech firm, announced that it had some encouraging results from a Phase-1 clinical trial of its COVID-19 vaccine.  Specifically, 8 patients who were given the therapy developed the same level of antibodies found in patients who actually survived the virus itself.  That IS truly great news, which was embraced by the market pushing the Dow up over 1000 points at one point in the session.  Ahhh, remember those days?


So why is it that I find myself uneasy about all of this? Yesterday, I was on a call with a client and he started the conversation with “crazy market, eh?”.  I agreed.  Sure, we are both happy to see the market move higher, but so-much-so-fast is a bit unnerving.  Crude oil has taken off, rising by +114% this month alone.  Remember when it was -$37 a barrel just a few weeks back?  Aggressive supply cuts and hopes that demand will increase as lockdowns ease have brought the market from contango back to a state of backwardation.  These are technical terms to be discussed in the future, but suffice it to say things appear to be back to normal.  Stock valuations?  I have written a great deal about that recently and they certainly reflect a positive outlook with the S&P trading at 23 times earnings for 2020 and 18 times for 2021.  As we closed out 2019 with the stock market hitting new highs, PE’s were 21.  For reference, the long term average is around 15 times, so stocks would be considered “fully priced” compared to historical levels.  Did I mention that many companies have withdrawn all forward guidance, so we have no real visibility into how they will perform in the coming quarters.  In fixed income markets, yields have crept up a bit as the Treasury adds record supply to the markets, while the Fed is busy buying corporate bonds and ETF’s.  Still yields remain relatively low indicating that bond traders do not think that we are out of the economic woods just yet.


Thankfully, the virus curve is flattening in certain areas of the country proving that this costly and painful lockdown is helping. Testing has become more readily available which further helps in preventing the spread of the virus. Finally, therapies and vaccines are starting to show some encouraging results.  However, even the most aggressive experts don’t expect their wide availability until late 2020 or early 2021. Moderna hopes to start Phase-3 clinical trials by July and experts feel that a January 2021 release date is a “credible objective”. While all of the positive news is encouraging, we have just begun to witness the real economic effects of the national economic pause.  Getting the country safe is one thing and getting workers back on the job is still another. Further, companies who were struggling in better times may not even make it as we witness a rise in downgrades and bankruptcies. What this all means is that while we may be on the road to recovery, it will certainly not be a straight path and we can expect some bumps along the way. Despite the good news, investors need more than ever, to stick to their core investment strategy.




Stocks ripped higher yesterday on feel-good words from the Fed Chairman and positive clinical trial results in the quest for a vaccine. The S&P 500 climbed by +3.15, the Dow Jones Industrial Average rose by +3.85%, the Russell 2000 traded up by +6.10%, and the Nasdaq Composite Index advanced by +2.44%.  Bonds pulled back and 10-year treasury yields rose by +8 basis points to 0.72%.

daily chartbook 2020-05-19


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