Market Meltdown 2020!
MARKET MELTDOWN 2020! (or is that a bit too dramatic?)
US Markets went into melt down mode on Friday – the Dow giving up 603 pts or 2.03% on the day, closing close to but not on the lows. The S&P, at its worst, gave up 69 pts but managed to close with a loss of only 58 pts or 1.77%. The Nasdaq ended up losing 147 pts or 1.60%, after rallying back from being lower by 174 pts earlier in the day. The Russell lost 38 pts or 2.07%. Think end of month, and end of week, as BREXIT and the coronavirus stole the headlines, punishing stocks and investors as the spreading virus fanned the fears of an out of control epidemic. Earnings data and economic reports were pushed to the side as the talk of what is to come on Monday was all the rage as the world awaited early reaction on BREXIT and China, as markets there re-open for trading, after having been closed for a week for the lunar new year, the Year of the Rat. By the end of the day, the Dow, S&P and Russell which had gotten off to a strong start in the first three weeks of the year have now ended the month in negative territory down 1%, 0.16% and 2.7% respectively. The Nasdaq, which had been up nearly 6%, ended the month up 2%. And that is a whole other conversation about what to expect this year, as how January goes, so goes the year!
OK, not a disaster, by any stretch. So let’s put that in perspective. But it sure felt like it as the markets had gotten off to such a strong start this year, which is exactly why we see the selloff happening. But put that aside for now. The chatter on Friday was about CHINA and what was going to happen on Monday morning, (Sunday evening for the rest of the world), when trading resumed. Anxiety swept through every asset class as the selling intensified in Europe and then spilled over into the US markets, the action driven by mindless algorithms that feed off each other not allowing for cooler heads to prevail. The VIX (fear index) surged as much as 29% at the markets hit their worst levels but managed to close up “only” 21% as the day came to a close.
Treasuries rallied strongly sending yields plunging to 1.52%, levels not seen since 2016! Gold rallied $4 or 0.26% (think safety trade on both) while Oil continued to collapse, falling 1% as talk of “economic disaster” and falling demand are the plot lines for this latest chapter as the news continued to spill over the airwaves, talk that I do not agree with at all, but I’m apparently in the minority on this. Oil is now down 22% from the highs seen on January 8th ($65.40) taking it to $51.56/barrel, a level seen as support in June, August & October of 2019. Energy names – think S&P energy ETF (XLE) are now down 12% from the first of the year, taking that stock back to levels not seen since the market “correction” of December 2018 and before that to levels in March 2016. Which might cause one to ask: Is this a support level for both oil and the energy names? I mean talk about “value!” Are XOM, CVX, SLB, RDS/A, TOT to name just a few really going out of business? Doubtful. Although I guess you could have said that about Enron, Bear Sterns, Lehman and CountryWide to name a few.
Now look, while this virus “might” cause some short term disruptions to the Chinese economy and the global economy. My sense is that at its core, the global economy is humming along. The latest Chinese macro data is “all better than expected” and the US economy is in good shape and the Europeans, they are making headway. So any setback will be met with a strong reversal once this virus is under control and THAT is the real question. When do medical professionals think this will come under control? Because no matter what you say, Wall St. and the Wall St. algorithms are NOT the ones to turn to when diagnosing the length and depth of this latest viral attack. The algos have the ability to wreak havoc in the short term, but that then creates the longer term opportunity for the “investor.” Just sayin’.
Sunday morning, news hit the tape that the Chinese are “injecting” $173 billion of liquidity into their system while also cutting interest rates to “prevent or slow” any over reaction in the markets, as Chinese investors get their first shot at reacting to the angst created by this virus that has gone viral. Now while this sounds like and is a lot of money, many analysts and strategists wonder if it is enough to stop a dislocation. Kingston Securities Executive Director, Dickie Wong told CNBC Street Signs: “it might only help a little and that the Chinese government had more tools to tackle the problem.”
Well guess what boys, apparently Dickie was correct. Last night at 8:30 pm EST, the bell rang in China and BOOM! Investors couldn’t hit the sell button fast enough. The action was described as “savage” as everyone ran for the exits. Trades were left undone as fund managers tried to calm the selling. The government demanded proprietary traders at the brokerage houses to be net buyers of Chinese stocks. (What they actually said was that they could NOT be net sellers – which means they need to be net buyers). By the end of the day, the Chinese market closed down 7.7%.
Next up is Europe, and investors there are dealing with the separation of the UK (United Kingdom) from the EU (European Union). BREXIT (not MEGXIT) hit the tape on Friday evening and today is the first day that investors can react. And guess what? A big nothing done. Investors there are not worried. As one of my dear friends (in the UK) told me:
“My house value has not halved, there are NO troops in the street and candle sales have leveled off now that all of the liberals have stopped holding candlelit vigils for the EU.”
Today starts the first day of the transition. The UK and the EU have 11 months to try and hammer out a trade deal. Markets across the continent have all begun the day in positive territory, as the coronavirus once again gets pushed to the back burner.
As of this morning, the FTSE is +0.33%, CAC 40 + 0.18%, DAX +0.24%, EUROSTOXX +0.19%, SPAIN +0.18% and ITALY +0.25%.
Next up is the US presidential election. Today is the first of many primaries. It is the Iowa Caucuses, and this says so much about the next steps and moves in the Democratic party. Depending on what happens here today, we can be sure to face months of uncertainty (or not). With “Uncle Bernie” in the lead today in Iowa (according to the latest polls), this could set up to be an extended fight with bouts of excitement and disappointment for the herd. And after the surprise 2016 results, no one wants to be caught off guard at all. Over the next five months we could see multiple scenarios playing out and that will cause different sectors to react based on who the top dog is at that moment in time. That will cause markets to surge and then sell off until we see who emerges as the candidate to challenge Donny in November. I imagine we will have a clearer picture by Super Tuesday, March 3rd or maybe not, as some strategists think this will go to a brokered convention this summer.
This morning, US futures are all up, as the markets attempt to shrug off the selling from Friday and overnight in Asia. Dow futures are +100 pts, S&P’s are +14 pts, The Nasdaq is +40 pts and the Russell is up 7 pts. Earnings continue to be the focus as this is the last week of the “beauty pageant” and we will get plenty of macro data to digest. Expect today’s conversation to be all about Iowa and what is happening there, and how that will begin to affect market psyche and action. With futures pointing higher, the whole coronavirus conversation is a moot point.
Economic data today includes: Markit Manufacturing PMI of 51.7 – bullish, ISM Manufacturing PMI of 48.5 (less bullish – but trending higher -so more bullish). Later in the week we will get Factory Orders, Durable Goods, ADP employment report, Markit Services PMI and ISM Services PMI – both expected to be above 51 (bullish) and on Friday we will get Non-Farm Payrolls – exp of +160k new jobs.
Earnings today include: SYY, ACM before the bell and GOOG, WWD and HXL after the bell. GOOG being the big one, exp of $12.50/share. Now look, GOOG has rallied 28% ($1187 to $1434) since October. Friday’s sell off saw the stock lose $21 or 1.48%. If the tone of the overall market remains up-beat, then I would expect GOOG to take it all back and then some if the earnings hit. If they beat (which is really the expectation), then look for GOOG to challenge the most recent highs of $1500.
The S&P closed at 3225 on Friday, after having tested trendline support at 3211. With the tone much more upbeat today, it would be no surprise at all if the algos attempt to take it all back. I don’t think they will, but once the momentum gets started, they trip over each other trying to access the fragmented marketplace. So it isn’t out of the question by any stretch.
Oil is trading up small as it tries to stabilize. There are some China headlines saying: “Demand is expected to be weak because of the virus.” To that I say BS. They are jawboning it lower. The world still has to turn. As noted we are the lows of June, August and October of 2019. If we hold here that will be a good sign. If not, well, that’s a conversation for another day.
Gold is lower by $5 at $1582/oz. as the fear subsides. But remember, the uncertainty around the virus and global growth continue to be of real concern. 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.
General Tso’s Chicken
With all the drama surrounding China today – this seemed so appropriate
This is not a difficult dish to make – but does take some prep work – should be done within 30 – 40 mins from the start. And because this is a specific dish – I have to give you specific ingredient amounts – otherwise it won’t come out right. I got this recipe from a Chinese friend of mine who is also a great cook. This should yield dinner for 4 (maybe 5) I hope you enjoy.
For this you need 3 things – a marinade, a coating and a sauce – so
For the marinade you need: 1 and a half lbs of boneless skinless chicken breasts – cut into bite size pieces, 1 tbsp. of Chinese rice wine, 2 tbsp. of dark soy sauce and 2 large egg whites.
For the coating you need:
1 cup of cornstarch, quarter cup of flour, half tsp of salt, half tsp of baking powder
For the Sauce – you need: 3/4 cup of chicken stock, 3 tbsp. soy sauce, 2 tbsp. of Chinese rice wine, 3 tbsp. of sugar, 3 tsp of cornstarch, 1 tbsp. of vegetable oil, 2 large cloves of garlic – minced, 2 tsp minced ginger, 5 small red chilies seeded and cut into pieces, 3 scallions – chopped, 2 tsp of toasted sesame oil and high heat oil for frying… (High heat oils include – vegetable, corn, canola, grapeseed)
Begin by rinsing the chicken and drying with paper towel. Now set in bowl and set aside.
In another small bowl, combine the “marinade” ingredients and then pour over the chicken – making sure to coat well. Set aside.
Next – combine the sauce ingredients – making sure that the sugar and cornstarch are dissolved – Set aside.
Next – make the coating mixture by combing all of those dry ingredients in a medium size aluminum pan. (Easier to coat the chicken pieces)
Now remove the chicken from the marinade – letting any excess marinade drip off the pieces before you add to the aluminum pan to dredge in the coating mixture. Do this in batches – not all at once.
Now heat up enough oil to deep fry the chicken pieces – add the chicken (in batches) and cook until nice and golden brown and crispy (if you add too much at one time – you will cool the oil and it won’t get crispy and brown the way it should) …usually not more than 4 or 5 mins. Remove and place the chicken on a platter lined with paper towel – this will help them drain.
Next in a wok – heat up a tbsp. of the oil and fry the garlic, chilies and ginger for 30 seconds. Turn the heat to simmer now and add in the “sauce” and simmer until thickened. When ready – add in the crispy chicken pieces and stir to coat evenly. Allowing the chicken to absorb the sauce while still remaining crispy– leaving the heat on simmer. Toss in the scallion and serve immediately with the white rice and steamed broccoli to get the authentic Chinese presentation.