The Algorithms Went All In

Circuit breaker limits today

Level 1 – S&P must fall 7% – 171.31 pts

Level 2 – S&P must fall 13% – 318.15 pts

Level 3 – S&P must fall 20% –489.46 pts.

Enormous! That is the way to describe what happened on Tuesday. As the algos went all in – taking stocks higher and then higher again as Congress worked hard to come to an agreement over a $2 trillion rescue package. This coupled with the $4 trillion promised by the FED creates a $6 trillion total package. So yes, it is enormous.

Stocks rallied from the opening bell yesterday morning – as talk of more Fed stimulus coupled with this rescue package took hold. Pictures of Treasury Secretary Stevey (Mnuchin) and Senate minority leader Chucky (Schumer) emerging from an “all-nighter” were enough to light the fuse. Algos, investors and traders all going on a shopping spree – picking up names that have been absolutely slaughtered over the past 5 weeks. It appears there might be light at the end of the tunnel. Talk of Asian economies coming back online also adding to the feel good mood – as any clarity there holds out hope for the rest of the world.

As the day wore on – the momentum kept building as progress on Capitol Hill moved on. Special updates by key Senators and Congressmen kept hope alive as investors needed to hear something good to soothe investor anxiety. As the end of the day approached – the algos went into overdrive sending the broader market even higher as the excitement continue to build. By 4 pm – the indexes were on fire, leaving the Dow up 2,112 pts or 11.3%, the S&P ahead by 209 pts or 9.3%, the Nasdaq up by 557 pts or 8.12% and the Russell up by 94 pts or 9.39%.

The headlines capture it all:

“Dow Soars More Than 11% In Biggest One-Day Jump Since 1933”

“War Time Level of Investment”

Look – let’s be honest – the country and the world has suffered a massive heart attack. These are unprecedented times demanding unprecedented actions. Governments and central banks around the world are answering the call. Central banks – by pumping massive amounts of money into the system are ensuring the fair functioning of the credit markets while government action should assist in getting the global economies back on line. Now while all of this is positive – markets remain extremely sensitive to any new developments surrounding the spread of the virus and the damage it continues to cause to the global economy as the speculation about the depth of the coming recession varies greatly. So expect continued volatility in the weeks ahead as the market attempts to stabilize. The algos will continue to create exaggerated moves – both on the upside and the downside, as evidenced yesterday and again today. Remain focused – pick your spots. It is easy to get drawn into the fray when you see outsized moves. The market has a long way to go to repair the damage suffered during the past month. It will happen, but it will take some time.

This morning – markets around the world are surging. US futures were all higher showing triple digit gains for the Dow. But as the night turns to day – US futures have sold off. Dow futures are now down 24 pts, S&Ps are down 15 pts, the Nasdaq is down 44 pts and the Russell is off by 3 pts. Asian markets were the first to react to the latest US rescue deal. Japan seeing the greatest action closed up 8%, while Hong Kong rose 3.8%, China added 2.7% and ASX closed up 5.5%.

European markets were also now off to the races and have since retreated. Across the Eurozone –  individual countries have all announced some sort of fiscal stimulus to protect their economies but there is pressure to do more. Markets continue to remain volatile.

As of 6 am – the FTSE IS +0.87%, CAC 40 +0.88%, DAX -0.39%, EUROSTOXX -0.29%, SPAIN -0.45% AND ITALY -1.57%.

Yesterday’s economic data included US market Manufacturing PMI and US Markit Services PMI. While the manufacturing number was not a disappointment the services number was a disaster – coming in at 39.1 versus the expected 42. But this wasn’t really a surprise at all. I guess the surprise is the fact that it wasn’t worse. Tomorrow brings us Initial Jobless Claims (which has been running at about 225,000 claims week over week). Now the estimate is for 1,500,000 new claims – but the whisper number is as high as 3,000,000 new claims. So strap in…

Next up – is the fact that the “deal” is only a handshake agreement as of 7 am this morning. The vote hasn’t actually happened yet – and is expected later today. So this is all still very tenuous. While I am not suggesting that it will fail – it is NOT done yet. Any hint of stalling would surely see the algos go from BUY mode to SELL mode and you know what that means.

The S&P closed at 2447 and appears to be trying to build a base in the 2200/2500 range. This is preliminary. It could get worse, as we move thru the next couple of weeks. But – if it steadies here – that would be a good sign. Today’s congressional action will be very important to the next move the vote needs to happen in order for the clarity to take hold. A failure at passage will see all of yesterday’s gains evaporate in minutes and then some. A passage is still sure to bring a lot of questions over implementation. So stay tuned.

Oil is up 34 cents or 1.4% at $24.37/barrel as investors react to the stimulus deal. ING cut their Brent Crude price projection from $33 to $20/barrel as the demand shock hits home. A shock that is only exacerbated by the expected surge in supply from the Saudis and the Russians coming next month.  Expect oil to remain in the $20/$25-dollar range in the near term.

Take good care.

Kp


risotto with cauliflower

Risotto w/Cauliflower & Truffle Oil (Butter)

This is another great risotto dish that is easy to make and easy to present.  For this you need:

Diced Spanish onion, olive oil, butter, 2 Cups Arborio rice, 1/2 Cup dry white wine, Cauliflower Florets Cut into bite size pieces, warm chicken broth, s & p, truffle oil or truffle butter and shaved Parmegiana cheese.

Heat the olive oil and butter in a heavy saucepan over medium heat.

Add the onions and cook until tender – maybe 10 mins… then add the risotto and stir until well coated with the oil mixture. Add the wine and continue to cook until it is almost completely absorbed.

Next – begin by adding one ladle of the hot chicken broth, stirring frequently until it has been almost completely absorbed before adding more. Continue to cook the risotto in this manner adding the broth one ladle at a time until the rice cooks.

While the risotto is cooking, heat some more olive oil in a frying pan and add the cauliflower. Cook over medium low heat adding a tablespoon or two of broth until the cauliflower is tender and just beginning to turn a golden brown. Remove from the heat.

After cooking the risotto for about 25 mins, should be tender to the bite, stir in the cauliflower and butter. Season with s & p to taste.

Once it is well mixed – serve the risotto into individual bowls, drizzling the top with the truffle oil or a spoonful of truffle butter.  Garnish with shaved cheese and serve immediately.

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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