Circuit breaker limits today
Level 1 – S&P must fall 7% – 181.10 pts
Level 2 – S&P must fall 13% – 341.91 pts
Level 3 – S&P must fall 20% –526.01 pts.
Unbelievable! Stocks surged 6.4% taking this week’s gains to better than 20% across the board. So the bear market that happened in a matter of weeks and took the Dow down some 37% between February 21 and March 23rd has now turned back into a bull market! This week’s gains total 24% through last night close – essentially putting us back into a BULL market – which is defined as a 20% move off the most recent low. The drama is all very exciting for sure, but is this most recent move a bear market trap? Well – we are about to find out.
[A bear market trap is defined as a “false technical indication of a reversal from a down- to an up-market that can lure unsuspecting investors. These can occur in all types of asset markets, including equities, futures, bonds, and currencies.”- Investopedia]
Yesterday’s rally, which saw the Dow add 1353 pts or 6.3%, the S&P tacked on 154 pts or 6.3%. The Nasdaq surged by 413 pts or 5.6% and the Russell joined in the fun – adding 70 pts or 6.3%, continued to be fueled by the idea the $2 trillion rescue package coupled with the unlimited commitment by the FED to “do whatever it takes” will surely be enough to blunt the expected economic damage that is just around the corner. In fact – Fed Chair Jay Powell went on TV yesterday and re-iterated the fact that we “are NOT out of ammunition” when it comes to solving this problem. And yesterday’s initial jobless claims report was just the first warning bell for what we can expect. As noted above – we saw 3.28 million new claims filed last week – a number that is a multiple of what were considered the darkest days of the GFC (Great Financial Crisis) back in 2009. This has now brought an abrupt end to what has been a historic record run for ongoing job growth. Now next week – those claims get moved over to the Continuing Claim report and so we can expect that report to surge to more than 5 million people as a new round of new claims takes hold. (Current Continuing Claims total 1.79 million, add in the 3.28 from yesterday and you get 5 million+!). That is just two reports that will begin to tell the story.
Today’s economic data includes Personal Income – which is expected to show a +0.4% increase and Personal Spending which is expected to show a +0.2% increase. Now these are monthly reports so the weakness in these reports may not show up until the April report. But if it goes as we think it – expect these numbers to collapse as well. And the list goes on: Housing, PPI, CPI, Industrial Production, Capacity Utilization, Retail Sales, etc. are all expected to be weak as the days go by. The recession that we thought we had avoided is now knocking on our door – not because the economy is (or was) weak, but because governments around the world have brought the economic engine to a full stop. Thus a recession is the only outcome.
And next up are the coming earnings reporting season – which begins in earnest in two weeks – at precisely the same time that the virus is expected to crest on the east coast! Now – remember – estimates have been slashed, guidance has been all but eliminated – as CFOs and CEOs recognize the fact that they can’t, in good faith, realistically guide anyone about what the future looks like – at least for now. But stock prices have already reacted- investors (and algos) have already priced in the expected weakness that is about to hit the tape, thus the collapse. But the market has estimated what it thinks the future will look like – reality will hit when they actually report. Most of the weakness in current numbers is already factored in – further weakness will hit the market if the current expectations did not accurately reflect reality. And then it will be the guidance going forward. What will companies say about re-opening? What will companies say about re-hiring? What will companies say the future? Will they even attempt to predict or will they hide behind the uncertainty that is sure to continue to exist? And those are the questions that will drive the action for now.
Now – “Rona” is officially here. The US has now tested and confirmed more than 85k cases – most of those in NY, CA, WA and now LA (yet it does exist in every state). We can expect that number to surge over and over in the next three weeks. So get used to it. ‘Rona isn’t going away anytime soon. So why are the markets rallying? Think – Way overdone on the downside. Think that while we will have an increase in cases and deaths – this is not the bubonic plague that wiped out more than 50 million people (and nor will it be). Yes – we are sure to be plunged into a recession, but this is not a typical recession. This one was specifically manufactured and so many now think that once we get back to work – the country and economy will be fine.
Large asset managers are re-allocating portfolio’s based on recent price action…thus driving the latest move. Stocks that have been clobbered, to the point where you’d think they are going out of business (and they are NOT) represent real value, thus the call for people to remain calm and remain invested and to use the opportunity to further build a well-diversified portfolio. You can make the list – there are so many names to choose from – names that you know and names that will surely come roaring back once we get through this. Every single sector in the S&P – which have been punished are now rallying strongly. Now that being said – the latest rally remains suspect. Yes we went down fast and can go up fast, and we can down fast again, as the market thrashes around looking for stability and a bottom.
Overnight Asian markets were mixed. Chinese industrial profits plunged 38% in February – (that should not be a surprise to anyone) yet the Chinese market actually moved up. This is where you see that the collapse in the Chinese market two months ago – preceded this negative number. When the number is reported, the market has already discounted it – so it’s a non-event! Concerns over “Rona” are still driving much of the action across the region.
By the end of the day – Japan +3.8%, Hong Kong +0.56%, China +0.3%. and ASX – 5.3%.
European markets are all down (BoJo only the latest high profile leader to be diagnosed with “Rona”). Some of it profit taking and some it continued concern over the damage done to that economy. The virtual meeting among the EU member states failed to produce any concrete agreement on what to do about Rona as infections and deaths continue to mount. It continues to hammer those local economies. Policy makers now giving themselves two more weeks to work out a plan – (at that point – the plan will already have worked itself out as the virus moves across the Atlantic). The ECB (European Central Bank) is now all in and is set to buy up anything in any country, paving the way for “unlimited money printing” as they attempt to blunt the economic damage that is coming. In the meantime – the G20 has committed to pump more than $5 trillion into the global economy in an unprecedented coordinated effort to minimize the impact of “Rona.”
As of 7 am – FTSE -3.96%, CAC 40 -3.49%, DAX -2.32%, EUROSTOXX -3.18%, SPAIN –2.18% AND ITALY -2.20%.
US futures are off in early trading and THIS should not surprise anyone at all. After the 4000 point move in the Dow, the 450 pt move in the S&P, the 1180 pt move in the Nasdaq and the 220 pt in the Russell – in just four days – the idea that we will get some profit taking should not be a surprise. The House is expected to vote and pass on the $2 trillion rescue package today. (That’s good – Nancy assured us that is has strong bi-partisan support) but this expectation has already been priced in. It is Friday and the weekend is upon us. So much can happen again – that it makes sense for the trader types to take some money off the table – especially since the last couple of Mondays have been tough days.
The S&P closed at 2630 and appears to have broken outside of the 2200/2500 range where it is building a base. This morning’s weakness will take us back into the high 2500s as it looks to continue to build its base right in here. A pullback today is OK, as long as it continues to test lower and find that there is demand. Now – we are not out of the woods by any stretch, but I will say – it does feel different today than it did last week. While the media will continue to paint a dire picture of “Rona” – the reality is that the market is already looking beyond what is expected to be the crest of Rona infections so that is a positive.
Take good care.
Grand Marnier Shrimp
It is simple to make and delicious to eat.
For this you need: 1 lb cleaned and deveined jumbo shrimp, egg whites only, grand Marnier, oil, flour, mayonnaise, sugar, and orange juice.
Make the sauce – equal parts of sugar and grand Marnier (say 1 tsp), then add 1 tbsp. of orange juice and 2 tbsp. of mayonnaise. Set aside.
You need a wok for this to work well. Begin by heating up the wok – add a bit of oil and wait until it is nice and hot…
Now toss in the shrimp and stir fry. Remove and set aside. Wipe out the wok.
Now – reheat the wok and add a bit of fresh oil – add the sauce and the cooked shrimp – sauté for a quick min – throw in chopped walnuts – serve immediately.