The expectations vary. We all know folks who have been laid off from their jobs since the first tranche of $350 billion in funds meant to reach small businesses ran dry, thanks in part to the small size of the program. Thanks in part to some entities who never should have applied. The House will vote today (Thursday) in order to pass a second, and probably still too small, tranche of loans/grants meant to keep these firms staffed for the time being.
It's too late for enough of them, though. Those employees have filed, or to put it more precisely... have attempted to file. Many are still entering their information into the systems only to be told that someone will get back to them within 72 hours. Then they wait, and hope, that someone does indeed try to get back to them. Results? I hear that some are having more luck than others.
Thursday has become the day of dread for economists. This is the day of the week that we, as a nation, learn just how many folks were able to file first time claims for unemployment benefits. On March 22, we started counting this weekly data-point in the millions, instead of the low hundreds of thousands. Over four weeks' time, an approximate 22 million laborers have made these claims. The expectation for today is that somewhere between 3 million and 5.5 million additional folks have filed.
Although, at the mid-point, this will look like at least a cooling in demand for public help at the household level, understand two factors: One, I have already told you that state filing systems are still overwhelmed by the need, which is exacerbated because the physical offices are closed. Two, how many businesses have cut hours or shifts in an attempt to not have to reduce headcount? Every breadwinner now working three days instead of five, or 25 hours instead of 40, may not be "unemployed", but that individual most certainly is "underemployed" -- and unable to support the standard of living that perhaps that one household had been existing at.
Those suffering from damaged health, and the stress placed upon front line care-givers as well as first responders, are where the obvious pain for this pandemic is. Beyond that, at a very human level, there is a less visible, but still very real kind of pain. This is why, in places there is a push to open nail salons, massage parlors, and tattoo studios.
Do those seem like the very first businesses that you would try to re-open? Me neither. Hard to think of a whole lot of businesses that might require more close contact between human beings. I do understand the pressure to do so. I still would not. Is my opinion colored by the fact that I grew up in, and live in, New York? Perhaps. Guess we'll know more soon enough. I am just a little bit afraid to look, when the Department of Labor reports weekly jobless claims at 08:30 a.m. ET, and then when the state of Georgia takes on more than just a little bit of increased risk as soon as tomorrow (this Friday). I truly hope for a best outcome.
Break Dancing
Maybe you're too young to remember. Maybe not. Growing up in a semi-urban environment as a kid in Queens, NY, back in the 1970s into the 1980s, there was a craze known as break dancing or "street dancing." No, I was never a participant, I mean come on you guys all know how Irish Catholic I am. I am lucky that I figured out how to dance at my wedding. I was, however, one of the folks that stood there in a circle watching and wondering just how these kids my age could dance the way that they were. I did play sports, and I did understand that though these kids might be more in the "artsy" crowd, that they most certainly were indeed, athletic.
You may have noticed of late (I know you have) just how athletic financial market behavior has been of late. I wrote to readers just twenty four hours ago that I felt due to dwindling trading volume that institutionally, portfolio managers had not participated in a large way, as equity markets had sold off for two consecutive sessions. Beyond trading volume, the movements made by various segments of our marketplace had led me to conclude that the Monday-Tuesday action had been more profit taking than anything else. As Wednesday progressed, equity markets moved higher. Sarge, pompous jerk that he can be, declared himself correct for the day, and patted himself on the back. Huzzah.
Just one thing. As the day wore on, the foolish champion realized that something was missing. Trading volume simply continued to ebb, not at the New York Stock Exchange where it was flat. We are going to have to work harder than that. Trading volume dried up significantly on Wednesday from Tuesday at the Nasdaq Market Site.
Why is that significant? Simple. Among S&P 500 sectors, Information Technology led the way on Wednesday, and semiconductors led technology by a country mile. Nearly as hot as the semis were internet stocks. Yes, this group resides in the Communications Services sector now, but be honest, these are still tech stocks and they still trade like tech stocks.
The implication? For me, those traders who took profits earlier this week bought the very dip that they created. Remember, most of these traders are not folks like you and me, working from home offices in these times. Most of these traders are high speed algorithms and the decisions that they make are not made in real-time, they are programmed in well ahead of time. Hence, in my view, significant flow of thoughtful capital is actually mired at a point of indecision right here. Unsure whether to increase exposure to equities that are reporting earnings that come with valid excuses, and bear forward looking guidance that in most cases is best case... extremely broad, and at worst, just impossible.
The Good
He said it. Don't known if you heard it. Sure would be nice, though. In an interview at "The Journal", which is a Wall Street Journal / Gimlet podcast, Vice President Mike Pence was quoted as saying "We truly believe as we move forward with responsibly beginning to reopen the economy in state after state around the country, that by early June, we could be at a place where this coronavirus epidemic is largely in the past."
Later in the interview, Pence seemed upbeat over the prospects that Americans might have what he terms a "good summer", as well as hopes that both major U.S. political parties would be able to hold their respective conventions this August. No word on baseball.
Boats
It's all about boats, for now. Prices for both WTI Crude and Brent increased on Wednesday and continued to do so overnight into Thursday morning. First, there is an expected armada of super tankers on the way from Saudi Arabia headed to the U.S. that should get here at varied intervals in May. As there is little remaining storage available in the wake of the now ended oil price war between the Saudis and Russia that was probably meant to target U.S. Shale, and as U.S. Shale producers themselves were slow to recognize the need to slow down, the arrival of this imported oil will be unnecessary and to be honest, quite unwelcome.
So, why did oil prices see a bit of a lift on Wednesday? As U.S. Navy vessels are again operating in the theater of the Persian Gulf, the very real threat would be that these vessels might be harassed by gunboats operated by Iran's Revolutionary Guard, as has happened in the past. President Trump gave naval commanders in the region the authorization to engage these gunboats upon such harassment going forward.
In addition, the Iranian military has announced the "successful" launch of a satellite to an orbit of 264 miles, or twice what the Iranian military had previously accomplished. Although there is certainly enough doubt being expressed over just how successful this launch may have been, there is no doubting the fact that such capabilities could change the complexion of the relationship between the U.S. and Iran, as well as between Iran and Iran's regional neighbors.
Europe
First, on Wednesday evening, you probably noticed that the ECB would accept some junk-rated type bonds as collateral going forward as long as those bonds were investment grade as recently as April 7. Now, even if some sovereigns such as Italy and Spain face downgrades in their short-term futures, the European Central Bank can still provide funding as the global battle with Covid-19 continues to hamper economies everywhere.
Then you saw, on Thursday morning... flash PMIs being reported across Europe. Whoa. While flash PMIs for the manufacturing sector descended into the low to mid-30s across the board, the service sector surveys were truly stunning, printing in many cases in between 10 (ten) and 15 (fifteen). Somehow, consensus view had been considerably higher than was reality for this set of data-points. What we see in Europe right now is literally a complete shut-down of the service sector economy. The U.S. "flash" numbers print at 09:45 a.m. ET this morning.
Trading Thought
Back on April 3, I wrote the Real Money crowd to let them know that I liked Raytheon Technologies (RTX) , and was getting myself involved at that point in the wake of the merge between the old Raytheon and the old United Technologies that also produced the spinoffs of Otis Worldwide (OTIS) and Carrier Global (CARR) . The trade has been a home run, up 28% in less than three weeks. That said, the momentum has flattened and trading volume in the stock has tailed off even more significantly than it has for the general marketplace.
My thinking has turned from "Oh baby, this stock is awesome." to "Hmm, I've got a real winner here, in a tough environment that is going to report in early May." Now, there is good. There have been no job cuts or furloughs at Raytheon Intelligence & Space, nor at Raytheon Missile & Defense, which supports my thesis for my long position in Lockheed Martin (LMT) . Hmm.. but wait, I did just take a partial off in that name too, right?
The hiccup for Raytheon might be Boeing (BA) . Collins Aerospace (kind of formerly Rockwell Collins) is part of the new firm, coming from the UTX side of the marriage. You see, the Collins Aerospace unit provides avionics, cabin seats and lighting for the still-grounded 737-Max commercial jetliner. Even if the jets were not grounded, there still would be no consumer demand for its services in this environment anyway.
My thought is this. I still love the development of missiles, electronics and hyper-sonic weaponry. I still think that this nation will have to spend more money than it wants to in order to defend itself. See, section on Iran, above. That said, allies and other client nations may not be in a position to spend on defense as they had previously planned. Then getting the airlines back into the skies is another whole ball game.
Maybe I take 20% to 30% off of this name until after earnings, if this early morning weakness in Lam Research (LRCX) persists. I am not counting any chickens here. LRCX is only down $3 overnight after running more than 11% on Wednesday. That said, the 50-day simple moving average of $268 is in play, and failure there could provoke some profit taking. Sure would love a second look at this pitch post-earnings. The 50-day SMA stands at $255. Maybe a pipe dream. Maybe not. Know shortly.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 5.245M.
09:45 - Markit Manufacturing PMI Plash (Apr): Expecting 39.5, Last 48.5.
09:45 - Markit Services PMI Flash (Apr): Expecting 33.5, Last 39.8.
10:00 - New Home Sales (Mar): Expecting 645K, Last 765K SAAR.
10:30 - Natural Gas Inventories (Weekly): Last +73B cf.
11:00 - Kansas City Fed Manufacturing Index (Apr): Last -18.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (ADP) (2.09), DPL (2.35), (LLY) (1.48), (FCX) (-0.17), (GWW) (4.47), (HSY) (1.70), (ITW) (1.69), (SBNY) (2.48), (LUV) (-0.08), (UNP) (1.90)
