Quiet Monday. Eerily so. Sure, traders did rally the Nasdaq Composite back from down 1.4% for the day all the way into the green (+0.5%). In contrast, the S&P 500 gave up a full percent, the blue-chip Dow Jones Industrial Average more so. What both of our broader large cap indices shared was substantially below (recent) average trading volume. Volumes dropped more than 32% at the New York Stock Exchange on Monday from Friday, and 24% or so at the Nasdaq Market Site.
Meaningless? I would not go just that far. What was there to take away from the last trading session before Q1 earnings season kicks off in earnest today? Well, I think we found out that there are a number of sellers who were willing to take some profits off of the top of last week's gains. That said, for the most part, institutional accounts were not really a large part of that. In my mind's eye, while not a confirmation of anything, this could mean that the confirmation of trend reversal, and the trend continuance that we identified in this space last week still stand.
So, technically... the bottom is in, Sarge? Technically, that's how I see it. Now remember, fundamentals count just as much as technicals, probably even more so. While technical analysis is a great way for traders to identify where the "bus stops" are, fundamental analysis provides for investors the general direction that the bus is most likely to move. Ahem. Sarge, there are no fundamentals going into the season. The quarter being reported does not count for much, and few firms will be able to guide meaningfully for the current quarter, much less for the rest of the year. True that, my young friend.
However, the most fundamental of all fundamental inputs are at this point are making the greatest impacts of all. As I have told you, the virus remains in charge until science claims that title. That's the big negative, for now... that every investor has been contending with for almost two months. Until that happy day when science backed by mass production takes down this monster, what we have in our corner, fundamentally, are the policy makers. "Whatever it takes." The phrase may have been uttered by former ECB President Mario Draghi a number of years ago as that central bank tried to navigate a different crisis. That phrase appears to have been taken to heart by the current Federal Reserve Bank led by Chair Jerome Powell, and the current Treasury Department with Secretary Steven Mnuchin at the helm.
Just the opinion of a simple man who thinks about these things, but I think financial markets will remain volatile. Duh. That's not a stretch. Every headline will have some kind of impact, as testing for this coronavirus spreads out to cover front line health care professionals, then first responders, then essential workers, and then the rest of us, but in tranches. This is where a firm like Abbott Labs (ABT) comes in, and then others follow. Reliable, but rapid testing.
Folks are going to have to be confident that if they become infected that they can seek treatment that will work at least until a solid vaccine is mass produced. We have by now all seen the somewhat positive early results for the first trials concerning Gilead's (GILD) former (and not especially successful) Ebola candidate, Remdesivir. Now, a small bio-tech by the name of BioCryst Pharma (BCRX) goes into trial with that firm's existing antiviral Galidesivir, a drug that has shown some reason for optimism in trials combating a number of different RNA viruses. Galidesivir has already been found to be rather safe in Phase 1 testing.
Then, it's off to reopen society in a rolling effort. It's nice to see both Apple (AAPL) and Alphabet (GOOGL) working together in a way to notify smartphone users that may have been exposed to the virus, though this effort would require the voluntary submission of certain rights to privacy, so there will be controversy, as well as those who do not participate.
You Did See?
Federal Reserve Vice Chair Richard Clarida on Bloomberg Television on Monday? He sounded confident. Central bankers often do, so I don't find that to be all that encouraging. Getting past that, Clarida spoke of averting deflation through policy. I do get the reduction in aggregate demand. I do get that folks who are worried about their health, their jobs, and their financial security do not go on spending sprees. That said, and I do see the efforts undertaken by policy makers as necessary, does anyone worry about a potential inflationary shock? I mean, maybe I am not the best guy to bring this message. I did warn publicly back in another epoch that quantitative easing would lead toward increased consumer level inflation.
Clearly, we never saw $7 milk, and $5 bread. I got that one wrong. That said, does anyone else see the potential with the forced expansion of greatly increased deficit spending (using fiat currency) just as spot shortages are likely to hit the economy in perhaps unexpected places. Don't get me wrong, I am not making predictions, but if a life spent in business and economics has taught me anything, I have learned that I do not know a whole lot more than I do know. As a consumer charged with supporting a family, I would worry more about creating an inflationary environment than I would, a deflationary one. We do have two Fed speakers to navigate today.
What I am looking for as the nation's large banks drag their numbers to the tape will be a few key items. I do get that past performance will be of less import and guidance will have to be more open to conjecture than usual. There are a few metrics that I will be looking for.
On the plus side, one would think that trading revenue should be higher. That's just dandy. In what almost every one of these banks has predicted will be an economic contraction of epic proportions, there will have to have been a sizable increase in loan loss reserves. So many business sectors, think oil, think the airlines, think so many businesses, are just plain devoid of meaningful cash flow at this time. We'll see what banks are the most exposed.
One positive aside from trading... despite the fact that benchmark short-term interest rates are planted close to zero, the yield spread between US 3 month paper, and US 10 year notes is currently wider than at any point throughout the calendar year 2019. This implies at least to me, that should a bank be able to find a suitable borrower, that net interest margins might not be all that horrible.
It's a Bird, It's a Plane
It's Netflix (NFLX) . Apparently, consumers are aggressively seeking streaming entertainment as they shelter at home from this coronavirus. We've already discussed the 50 million subscribers over at Disney+ (DIS) . Roku (ROKU) is trading higher overnight after revealing 3 million new active accounts since year's end as well as a 49% increase in streaming hours year over year for Q1.
Netflix soared $26 on Monday to close at $396.72. This came on news that global downloads of the firm's apps increased 57% year over year for the month of March. This action has been led higher from activity in the Asia Pacific region where these downloads ramped 124 higher for March 2020 from March 2019.
Now, I have been no fan of Netflix in the past, but there is no denying that this is where consumers are turning, and also likely that at least a large number of them will not cancel after social restrictions are eased as long as these consumers have jobs. The interesting metric, and one that always does seem to impact the share price, is in international paid additions. Remember that the firm had guided toward 7 million net adds for Q1. According to a note published at Evercore ISI over the weekend, the firm is on pace for 8.5 million such adds.
Economics (All Times Eastern)
08:30 - Import Prices (Mar): Expecting -2.8% m/m, Last -0.5% m/m.
08:30 - Export Prices (Mar): Expecting -2.0% m/m, Last -1.1% m/m.
08:55 - Redbook (Weekly): Last 5.3% y/y.
16:30 - API Oil Inventories (Weekly): Last +11.938M.
The Fed (All Times Eastern)
11:05 - Speaker: St. Louis Fed Pres. James Bullard.
12:30 - Speaker: Chicago Fed Pres. Charles Evans.
Today's Earnings Highlights (Consensus EPS Expectations)
(Abbott Labs, Alphabet, Apple, Disney, Johnson & Johnson, 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.)