The numbers had just hit the tape. More than four times the number of Americans had filed for unemployment benefits the week prior than ever had before. The eagle needed a perch to rest on, she was wounded. Algorithms that control trade started to make some sales. The futures markets hemmed, then hawed. In an area hospital, nurses divvied up garbage bags, as for their patients, the very fabric of life flickered. The line, our line seemed about to break.
In the distance. Hear that? One lone bugle, so hard to hear, so far away. That isn't all. The thunder. The thunder of one thousand hooves, or were they tracked vehicles? A hospital ship? Maybe they were just retired medical professionals. Or just nameless people who kept showing up when needed. I can not recall. There was beauty. The people. They all cared. Even corporations. They cared too. They all would try. For each other. Clouds of dust one could see growing above the treeline. Anger growing with the lust of hatred.
Not today. Not on this day. Fear was visible, but only on the faces of the wicked. The giant has arisen from a slumber too deep and too long. That eagle. Majestic. Unleashed. At first you could only see the very tip, as the guide raised the colors. Then we all saw her. We stood at attention. Hand salute. Ready, Two. We are the same when one of us hurts. Old Glory. One thousand streamers. Scars of one thousand battles ... flapping in the breeze. Tear up. It's okay. We all have. We all will. At full gallop, the entire regiment. Many entire regiments. Average, very average people. Doing it. Caring. Loving. Oh, say can you see? That beacon on the hill. That bastion of all that is good and decent. My people... this field will not be lost, but won. Over months. Let the wicked flee before us. We are strong.
No Bull?
How to explain this to investors. Yes, the economy is in a recession. A recession that due to the wonders of both electronic trading as well as modern passive investment had been priced in nearly automatically upon governmental mandate. Yes, I cringe when I hear financial types refer to this as a "technical recession." Don't do that. That's disrespectful to every family currently in harm's way. What you meant to say is that the economy was healthy, and then calamity struck seemingly out of nowhere. That's basically the very definition of a "black swan" event. For the worker trying to figure out what to do for their families, anything that trivializes the shock is unwelcome, and quite frankly... not helpful. Now, crawl back into your little hole and be quiet for a while. Your employer may be trying to figure out what to do with you.
Readers will also hear a lot about how the Dow Jones Industrial Average has now rallied out of an 11 day bear market, now residing in bull territory. Please understand, and I am sure most of you do, that the old labels no longer apply. Markets are in correction for as long as markets feel like they are in correction. I still feel like this market is in correction. How about you? I am trading more than investing a very narrow book these days. So far so good.
That said, I have never felt that a 10% selloff amounted to correction, or 20% made a selloff a bear market. These labels were created back when humans priced securities through a drawn out auction-like process referred to as price discovery. (Oh, price discovery... how I weep for thee.) The method was designed to produce a fair result based upon supply and demand at a point in time. Ten percent moves usually took months.
Current market models time execution in micro-seconds, forcing large numbers of very small trades. There are no sales-traders with a phone on each ear trying to put two funds with opposing interests in the same name together for large "block trades", while signalling to a position trader who is simultaneously trying to discount the position that must be taken on the smaller side of the two. Now imagine that trade with eight sellers, five buyers, and three position traders including a specialist at the point of sale. That my friends, was Wall Street. Somebody who picked you off knew they would have to fight you for the rest of their lives. These current market models favor speed over price and almost assure overshoot in both directions. You want to label these moves for whatever reason? Fine, but the old metrics are not valid here. Bull markets. Bear markets. These things are in the brain. It's a state of mind.
Thursday's Action
I hate to make the call. European markets are lower on Friday. Domestic equity index futures are showing some "zero dark-thirty" weakness here on the East Coast. On Thursday, stocks surged as all 11 S&P sectors showed strength. You'll recall what I told you 24 hours ago... what I needed to see in order to believe that a bottom had indeed been put in. I thought that the Nasdaq Composite was closer to a confirmation than the S&P 500.
We do not, I repeat... do not yet have what I need. Oh, the S&P 500 has put three winners to the tape in a row. The Nasdaq Composite has worked its way higher as well. Both indices closed at the top of their Thursday ranges, but... and this is a big but, trading volume dried up a bit. Trading volume across both of these indices slowed from the days prior. In fact, trading volume at both of New York's primary exchanges tailed off significantly as well.
The science is not perfect. The longer-term bottom could indeed be in, but for me, to see volume abate as prices climb off of recent lows, but still at tremendous discounts to where they were only weeks ago, simply means that fund managers who control institutional asset allocation are not on board this rally just yet. Maybe today. I'll call it when I see it. Maybe not. I'll call that too.
The Good
- The House of Representatives will vote on the $2T fiscal "support" package on Friday. I guess that's good.
- Fed Chair Jerome Powell, who I am so impressed with of late, has really been on the ball. On Thursday, Powell basically said...
a) The Fed is not out of ammunition.
b) The Fed will be able to lend anywhere credit is not flowing.
c) There can be a solid rebound on the others side of this predicament.
- There is no doubt that in response to the extreme measures taken by the central bank, that debt/credit markets have behaved in a far more orderly fashion, allowing for the drive to immediate cash to pause.
The Bad
- The House of Representatives will vote on the $2T fiscal "support" package on Friday. Hmm, that could be bad.
- This fiscal support that hopefully passes through the U.S. legislature on Friday is most certainly necessary in order to prevent widespread conditions of sudden poverty across the population. That said, this injection of cash and funding into many parts of the economy simply attempts to bridge a period of insolvency at every level of interaction, and of unknown duration. The scale of this problem only grows the longer the virus keeps the economy on the shelf. That means that this fiscal support will likely be a "first step", and there will be more. The more debt piled on top of debt, the greater the drag on future economic growth. No, the debt fueled super-cycle is not over, but we will certainly experience change in how economists understand conditions of layered debt at every level. Pretty safe to say, this will not be a positive.
The Ugly
- The United States has now confirmed more cases on Covid-19 than any other nation on earth. As I bang out this piece, I see the U.S. at just under 86K confirmations, ahead of China's 81.8K, and Italy's 80.5K. Of course there are caveats that must be understood. For one, this is probably the result of increasingly widespread testing, which is not being done nearly as aggressively in many other nations. The second would be the reliability or lack thereof of any statistical data that comes out of China, or any nation with a state controlled media.
- Of the known 85,991 confirmed cases in the United States, 39,140 are in the State of New York, 23,112 are in the City of New York, and 19,469 are in New York City's immediate suburbs (Westchester, Nassau, Suffolk, New Jersey). Does this mean the outbreak is more severe here, or does this mean that the other states are way behind on testing? Even though New York City is far more dense, far more reliant on mass transit, exposed to far more international tourism, and somehow inexplicably left the schools and playgrounds open for far longer than most municipalities in the area that I am aware of, lack of testing elsewhere is still likely an issue.
New Models...
We've gone over and over possible ways for investors/traders to tackle the current environment. Gone, are the rebound, virus, and revenue groups. Some of those names remain in this re-set. Others remain elsewhere in my portfolios. Others still either have to be entered, or re-entered after trading these names (we have had a three day rally) left the cupboard bare.
Virus Group Ideas: Sticking with Gilead Sciences (GILD) , Still need to put Moderna (MRNA) back on. Clorox (CLX) could be ready for an add should the 50 day line hold. Amazon (AMZN) has been a fantastic trading name. Teladoc (TDOC) has been a portfolio lifeguard.
Work Remotely Ideas: First up, Zoom Video (ZM) has been such a good name. Still need to put that one back on. Along those lines, I believe demand is increased for the services of Microsoft (MSFT) , Adobe (ADBE) , Salesforce (CRM) , and obviously ServiceNow (NOW) , an old Sarge fave that may have gotten away. This need increases demand for the data center, as well as PCs and notebooks. Micron (MU) told us that. For me, that means Nvidia (NVDA) , and Advanced Micro Devices (AMD) . In addition this also ramps demand for security as well as remote transaction. I look toward re-acquiring Zscaler (ZS) at the appropriate discount. I think I also need DocuSign (DOCU) .
Fiscal Ideas: You all know that I have forever loved Lockheed Martin (LMT) . What a recent home run that has been, as Boeing (BA) has gone to bat for the entire aerospace and defense industry. Might add Raytheon (RTN) or Kratos (KTOS) on a late Friday fire-sale if there is one. Safe to get involved in the banks? The airlines? Markets are liquid again. There will be some net interest margin. Many banks trade at incredible discounts to tangible book. No buybacks though. Has to be "best in class", maybe a JP Morgan (JPM) . The airlines? Not now. Big oil. Still have some BP plc (BP) , and the name is finally in the green for me. Lighter now, not adding.
Economics (All Times Eastern)
08:30 - Personal Income (Feb): Expecting 0.3% m/m, Last 0.6% m/m.
08:30 - Consumer Spending (Feb): Expecting 0.3% m/m, Last 0.2% m/m.
08:30 - PCE Price Index (Feb): Expecting 1.7% y/y, Last 1.7% y/y.
08:30 - Core PCE Price Index (Feb): Expecting 1.7% y/y, Last 1.6% y/y.
10:00 - U of M Consumer Sentiment (March-F): Flashed 95.9.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 664.
The Fed (All Times Eastern)
14:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant earnings reports scheduled for release today.
(Clorox, Amazon, Microsoft, Salesforce, Nvidia, and JP Morgan are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
