The Market is on a Roller Coaster

Markets continue to be on a “roller coaster” as investors/traders/algos continue to consider all the implications of the coronavirus, BREXIT, GDP, reported at +2.1% beating the estimates of +2%, Oil, macro data, ongoing earnings, falling treasury yields, and the drama of the Trump Impeachment proceedings (this was more entertainment versus market moving reality TV).

Recall that at this time yesterday morning, European markets were lower, US futures were pointing to triple digit losses for the Dow, the coronavirus was and is continuing to spread and the WHO (World Health Org) had yet to declare it a global health crisis. Over the past two weeks, we have seen the markets rally then come under pressure only to rally again as investor’s tried to put the virus behind us. Discussions over exactly what this outbreak would mean for the markets has dominated the conversation, with many recalling market action during and post the SARS virus, the Ebola virus, and the Legionnaires virus to try and settle investor fears. All of this as we entered the earnings reporting season…

As the day began, yesterday, global markets were under pressure. US markets opened lower and felt like maybe they would continue lower as investors and traders appear a bit exhausted as they attempted to assess the risk. Then at the late afternoon, the WHO did in fact come out and declare it a global health emergency. Yet they did not forbid travel to the region and around the world. Airliners and other leisure stocks, which have been caught in the storm, suddenly found buyers. The XAL (NYSE Arca Airline ETF) which has been all over the place and has lost nearly 5% through yesterday morning, managed to rally on the news, closing up $1.2 or 1.1%. That bit of news appeared to once again cause investors/traders/ and algos to put it all behind us. The market which had been under pressure suddenly did an about face and rallied sharply into the bell, leaving the Dow up 123 pts, or a 370 pt rally, the S&P up 10 pts, a 40 pt rally, the Nasdaq up 23 pts or 123 pt rally, and the Russell – flat, which was a win considering it was down 17 pts at 11 am.

But that was then, this is now. Once again we wake up to find that the virus continues to spread, deaths mount, now more than 210 people, (although not at crisis levels) and infections have now topped more than 10k with Europe reporting the first two cases of the virus now on that continent. The US State Dept., contradicting the WHO, telling Americans NOT to travel to the region while Russia closed the borders refusing to let anyone from China to enter the country.

And it is Friday, end of the week and end of the month, so for sure there will be some “repositioning” on behalf of asset managers and traders for month end window dressing as well preparation for Monday morning, when China markets open for trading, as they have been closed for the holidays, sending a bit of concern through the markets as so many will make a bet on what happens. Will Chinese markets come under “strong pressure” as investors there get a chance to react to the virus or not? If so, will that permeate throughout the global market system OR have the European markets/US markets already have run their course? Have the rest of us already dissected and digested the news and are numb to it? I think that depends on what happens over the weekend, what the Sunday talk shows discuss, and whether or not this virus continues to spread.

Earnings have been a mixed bag. Yet the big names have really not disappointed at all. In fact, many of the “big names” have “surprised to the upside” as if that is really any surprise at all. Yesterday we had more than 50 reports and of that we have a third of them disappointed while two-thirds beat, leaving the quarterly avg at 67% of “better than expected.” That is a bit below the normal avg that we have been seeing of 75% over the last handful of quarters and that is capping the move to the upside. Although the ones that do beat, (names that drive much of the action) BEAT BIG: a la, JPM, AAPL, AMZN, etc. Last night we heard it again, AMZN did what exactly? You guessed it, they beat on EVERY line, reporting earnings of $6.47/share versus the expected $4.10 or a beat by 58% of the avg analyst estimate. The stock surging in the after-hours session and this morning is quoted up $165/share at $2,035/$2,037. This move caused Jeffrey’s net worth to surge by $13 billion dollars. That is correct, billion, not million. Which leaves us to wonder: did Jeffrey help guide estimates lower ahead of the reporting season? I mean analyst estimates are public info – they put them out there to help prepare investors and markets. So again I ask: how can such sophisticated and educated street analysts be so wrong? I mean a 58% miss? 10% is one thing, but 58%, just sayin’…

This morning we heard from CAT and HON. Both beat on the top line, but had some revenue issues, CAT had weaker guidance going forward, while HON was a bit more upbeat. CAT is lower this morning while HON is higher. We await earnings from JCI, KKR, CVN, CL, ADNT, LYB, XOM, ITW.

Economic data today includes: Personal Income exp +0.3%, Personal Spending of +0.3%, Unemployment Cost InÞ of +0.7%, and MNI Chicago PMI of 49 – just below the magic 50 number but up from last month’s 48.2 – so that is a positive.

European markets are lower this morning. We are only hours away from the UK being its own sovereign country again in terms of the European Union. At 6 pm (est), the UK is no longer a member of the EU ending the 42-month exit process, which has been painful for much of that nation. The 11-month trade negotiations get under way. So basically on Saturday morning, nothing really changes, but the free trade negotiations heat up. That d-date is December 31. News of the “virus” hitting the shores of Europe also sending markets lower, as fears there heat up over how quickly the virus might spread across that continent. In addition, the Eurozone reported that fourth quarter GDP grew less than expected, while core inflation slowed and that will be a concern for the ECB (European Central Bank) and its new leader Christine Legarde.

FTSE -0.80%, CAC 40 -0.51%, DAX -0.39%, EUROSTOXX -0.52%, SPAIN -0.66% and ITALY -1.26%.

US Futures are all lower again, for all of the reasons stated above. Dow pointing down 125 pts, S&P down 13 pts, Nasdaq lower by 34 pts and the Russell off by 5 pts. Do not discount end of month moves as well as preparation for the Chinese reaction on Sunday evening (Monday morning in Asia).

The S&P closed at 3283, still below 3300 but not falling out bed at all. Although the tone does feel a bit weaker, which suggests that the next move will be lower. We would look for the S&P to test and hold the lows of this week at 3234 at some point. If it does not hold then look for 3210 to be support as it represents the 50 day-moving-average technical trend line.

Oil is trading up small but remains right in line at $52.40. We are beginning to see earnings reports from the industry. Today XOM and CVX to name just two. Let’s see what they have to say and how they do in order to decipher the next move. As you know, I like the sector as it has been such an underperformer, more so than I believe it should be.

Gold was lower by $12, but has rallied back a bit and is off by only $6 now after Europe divulges the arrival of the virus. Remember, the uncertainty around the virus and global growth continue to be of real concern, and this will continue to support gold right here. Do not be surprised to see it pierce $1600/oz. before it pierces $1550/oz.

Take good care.

Kp


wings

Super Bowl – Buffalo Chicken Wings.

2 lb. chicken wings, Vegetable oil, garlic powder, Kosher salt, pepper, 1/4 cup. hot sauce, honey, butter, Ranch dressing, for serving

Preheat oven to 400 degrees

Place a wire rack over a baking sheet. toss chicken wings with oil and season with garlic powder, salt, and pepper. Transfer to the wire rack.

Bake until chicken is golden and skin is crispy, usually about 50 to 60 minutes, be sure to flip the wings at the halfway mark.

In a small saucepan, whisk together hot sauce and honey. Bring to simmer then stir in butter. Cook until butter is melted. Turn the oven to broil. Transfer baked wings to a bowl and toss with buffalo sauce until completely coated. Return wings to rack – place in the middle of the oven and broil—watching carefully!—you want the sauce to caramelize, maybe 3 or 4 minutes… Serve with ranch dressing and carrots and celery.

Buon Appetito.

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Kenny Polcari

Kenny is the editor of Morning Thoughts and has been with Seven Figure Publishing since 2019.

Kenny is a CNBC exclusive contributor appearing on shows like The Halftime Report, Power Lunch, and Closing Bell. His market commentary has reached audiences across the nation on media outlets such as Bloomberg, Fox, ABC, and more.

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