Instantly Gratified

Instantly gratified.  Markets staged somewhat of a comeback on Friday after Thursday’s rout as bullish stock investors tried to buy the dip… again.  Stocks had a bumpy ride throughout the session but ultimately rallied into the close led by the usual suspect recovery stocks.

 

N O T E W O R T H Y

 

Thank God It’s Monday.  Yeah, Monday!  Last week’s market action was anything but exciting for the folks that were closely involved.  The beginning of the week felt like any recent one with the tug-of-war between the lockdown stocks and recovery stocks, with the latter slightly in the lead.  The optimists are winning and the pessimists are beginning to roll over.  It is hard to remain a pessimist when stocks are rallying in your face. What’s more, the tone out of Washington has lost its edge and hard-hit states are opening in various phases.  Oh, did I mention that summer is just days away and locked down and frustrated people just want to get out of their houses?  Even my social calendar is starting to fill up with back-porch-social-distancing get togethers… no hug-sharing or mug-sharing, of course.  Ok, so we are on the road to recovery… just where though is completely up for debate.  Some economic numbers suggest that perhaps we have hit bottom and even if that assessment holds, that bottom is well… quite deep.  My regular readers know that I like to throw around a lot of those old Wall Street sayings.  Two that come to mind are “You can’t fight the Fed”  and “Don’t fight the tape”.  The former implies that if the Fed is dovish and applying fiscal stimulus one should buy stocks.  The latter suggests that investors should not buck the trend and momentum – if momentum is positive, gains will be made by joining the crowd. Though these two adages sound simple and are probably overused, empirical evidence actually supports their validity. Unfortunately, neither of the two axioms help investors understand exactly how to make money.  There should be a footnote on each of them that says something like: “… and timing is everything”.   When to get in and get out seems to be the real trick and sadly, there are no proverbs on that.  The reason for the omission is probably because there is no proven way to time the market and success there appears to be more luck than skill.

 

Imagine, just as I was commenting to my wife that I couldn’t believe how much traffic there was on our local roads… bam!  Stocks have their worst day since March.  I won’t remind you how ugly March was for stocks.  A day before, Jerome Powell warned us that the road to recovery will be a long one.  On that same day we learned that new virus cases bumped up in several states.  Though I am pretty sure that neither of those two headlines were new information for the market, the bears decided to have a go at it. Just when the pessimists began to feel accomplished, the bulls, up from their brief rest, took the reins rallying the markets into the close on Friday.   The leader board was once again dominated by the recovery stocks, those horribly beaten-down stocks that would surely enjoy a comeback when things get back to normal.  But as we know, things are not yet normal and will most likely not get there for some time… that was affirmed just a day before.  On Friday, we learned that American Airlines happily announced that an increase in demand reduced its daily cash burn from $50 million to $40 million.  That means that the company is only losing $40 million dollars a day! The stock managed to close with a +16.41% gain on Friday, the third biggest gainer on the S&P500, just behind United Airlines and Norwegian Cruise Lines.  I wrote about Hertz a few times last week.  The bankrupted company announced on Friday that it would raise $1 billion by selling equity and use the proceeds to pay creditors.  Under any normal circumstance that news may have caused the stock to sell off or at least garner a chuckle from most seasoned investors.  Instead the stock traded up by +37.38% and seasoned investors could do nothing but gasp and raise their eyebrows. Yep, it was that kind of week.

 

Here we are back to Monday.  It was a glorious weather weekend here in New York.  A good opportunity to reflect and reset. As states slowly re-open we can expect new virus cases to increase.  Most experts are watching the increases carefully but most do not yet believe that the bump in cases is the beginning of the feared second wave.  Further, there is a continuous stream of positive data on the virus therapy front.  In last week’s press conference Chairman Powell made it clear that the Fed would continue to aggressively support the economy with near-zero interest rates and more stimulus.  If we are expecting low, zero, or even negative interest rates, weak returns on real estate, and deteriorating commodity prices, stocks remain the only game in town.  That should help equities going forward, though it will surely not be a smooth ride (futures are down overnight in response to spike in virus cases near Shanghai).  Exactly how much support and for how long it helps remains the tricky, unanswered question.

 

THE MARKETS

 

Stocks rallied on Friday as optimism crept back into the market and bargain hunters swooped in to pick up hard-hit stocks from Thursday’s selloff. The S&P500 climbed by +1.31%, the Down Jones Industrial Average traded up by +1.91%, the Russell 2000 rallied by +2.32%, and the Nasdaq Composite Index advanced by +1.01%.  Bonds pulled back and 10-year treasury yields climbed by +4 basis points to 0.70%.

 

NXT UP

 

– Empire Manufacturing (June) is expected to be -28.8, better than last month’s read of -48.5.

– Dallas Fed Chief Robert Kaplan and San Francisco Fed President Mary Daly will both speak today.

– The week ahead will feature Retail Sales, Industrial Production, Housing Starts, Building Permits, and the Leading Index, amongst others.  Chairman Powell will be speaking to lawmakers on Capitol Hill tomorrow and Wednesday which will surely be a market mover. Please refer to the attached economic and earnings calendars for details.

daily chartbook 2020-06-15

econ numbers 6_15

earnings releases 6_15