It happened just about an hour and fifteen minutes prior to the closing bell on Wednesday. Something changed.
No, it did not feel significant. Trading volume, always heavier toward the end of the regular session, did not feel special. Just a bit of "risk-off" type trading that impacted both equity and debt securities. The S&P 500, our broadest of large-cap indices, gave up just 0.4%, though well off of the session's highs. The late pressure did snap a three-day winning streak for this index.
Small-caps were hit harder than large-caps. This can often imply a loss of faith in potential for economic growth, yet the Dow Jones Transportation Average outperformed (-0.2%) the marketplace in general, led by truckers such as J.B. Hunt Transport (JBHT) , and Landstar System (LSTR) , as well as delivery services. Both United Parcel Service (UPS) and FedEx (FDX) finished in the green. This would imply just the opposite.
Confused? There are some on Wall Street who were too.
Where does Wall Street go when uncertainty creeps back into the darker reaches in the back of their collective craniums? They move back to growth over value, for the most part. They buy internet names, they buy semiconductors, they buy biotechs. They sell banks. They sell energy. It's worked since forever, and will continue to work until it does not, or until someone does something different.
Nevertheless, the Nasdaq Composite put another day in the win column. That's four in a row, that's eight out of nine, and that's 15 of 18. The Nasdaq is hotter than the NC Dinos. Well, maybe not that hot.
Of course folks are confused. Of course Wall Street's best guesses are hedged.
On the one hand, Fed Chair Jerome Powell, who finished up his two days of semi-annual congressional testimony before our legislators this week, has not only been emphatically dovish, but has acknowledged recently encouraging macro-economic data. However, the Chair also continues to sound justifiably uncertain regarding what could be a prolonged, or even choppy economic recovery.
Powell also warns over concerns that policy on the fiscal side of the ball may not be timely in nature, or might be pulled back a bit too soon as certain measures put in place to support businesses and households will expire later this Summer.
The thing is, Powell's words are not the typical "one hand versus the other" type verbiage that we'll often hear from uncertain economists. Though an economist by now, Powell is not a typically trained economist, at least not academically.
The nation now stands at a crossroads. We have an economy that is most certainly showing some life. Those green shoots have been most visible in the most open regional economies. Unfortunately, it is in some of these more open communities where the spread of Covid-19 has also been on the rise. Highly populated states such as Texas and Florida as well as a host of others are now making almost daily headlines, and not in a good way.
It is said that this virus spreads most easily indoors, that sunlight rapidly degrades the virility of the virus. Is it any wonder that the virus spread so rapidly across the Northeast as this past spring was colder than average for that region? Is it any wonder that the virus had barely spread across warm weather states until recently.... as spring weather turned into summer weather and folks headed indoors in these states seeking the modern comfort of air conditioning?
This virus may be seasonal in nature or not. It may just be that it does not degrade all that rapidly indoors. Open the windows. Open the drapes. Turn off the air conditioner even just for a little bit. Even in sunny Florida. Just an idea. I patrolled the rainforest as a young man. It's far more humid there. You can do this.
All that said, as a nation we are coming up against this weekend and into the few days that follow. It is by then that we should know more in regards to the depth of community spread that may or may not have been caused by the social unrest that has been visible across nearly every state. If we get through that without an associated uptick in new cases, then I think we have to really take a look at the indoor/outdoor/ air conditioning angle.
As for the political rally scheduled for Tulsa, Oklahoma this Saturday night... you could offer me free tickets to see Elvis in a crowded arena right now, and I would take a pass.
This Begets That
Some readers may recall that in Wednesday's piece for Real Money , where I offered my trading thoughts for Amazon (AMZN) and Mastercard (MA) , I mentioned that I have not used, or even touched cash since early March. I noted in the piece that I suspected others might feel the same way.
The Fed acknowledged this past Monday that both production and distribution of coins had been significantly impacted by the public health crisis. According to a Fed spokesperson, coin deposits from banks are down roughly 50% on an annual basis since the pandemic began in earnest back in March.
Coins, as most probably already know, are produced by the U.S. Mint. They are then distributed to banks around the country by the Federal Reserve based upon expected demand.
In his testimony on Wednesday, the Fed Chair when speaking on the flow of coins through the economy, said simply, "It's kind of stopped." Powell then added, "We are well aware of this and are working with the Mint and we are working with the reserve banks."
Part of the problem, obviously, is the greatly reduced demand for cash as many consumers simply do not want to physically touch actual currency in these times. Secondarily, at the onset of the pandemic, there was a minor run on cash for those with means. Third, I have a couple of coffee cans full of coins on the floor of my office. I bet you might also stash coins somewhere as well... until there is enough to make a trip to the bank turning the coins into either savings or greenbacks worth the trip. When my sons were young, those cans were used to offset trips to Disney World (DIS) in Florida. It was "found money."
Except, now, like with all trips to all types of businesses, everything has been reduced to only what is necessary and kept as short in duration as possible. Hence, the coins sit on the floor, as that trip to the bank is not necessary if I am not using cash, and that trip is never a short one, even if your bank is one of the few with a coin-counting machine.
Anyone else get a letter they didn't want in boot camp? No? Good for you.
A group of European finance ministers received a letter on Wednesday that they did not want -- from U.S. Treasury Secretary Steven Mnuchin.
The winners for now? Those who own shares of Apple (AAPL) , or Facebook (FB) , or Alphabet (GOOGL) among many others. Those on the receiving end would be the appropriate representatives of the U.K., France, Italy and Spain.
The deal is this. The OECD has long been looking to find a "fair" way to tax multinational corporations doing business in Europe but headquartered elsewhere. Of course, digitally, these firms are largely American, and come with a huge social footprint. Long an issue, as the Covid-19 pandemic has put every economy in the world in a fiscal hole, raising revenue becomes even more of a focus than it had been... especially when that revenue will not be drawn from the voting public of the nations looking to raise this dough.
Mnuchin warned that negotiations had reached an impasse. Specifically, he wrote, "The United States remains opposed to digital services taxes and similar unilateral measures... As we have repeatedly said, if countries choose to collect or adopt such taxes, the United States will respond with appropriate commensurate measures."
Anyone Else Notice
Just days after BP plc (BP) announced that it would take a $17.5 billion writedown and reduced its own forecasts for energy prices, the company raised $12.5 billion in a hybrid-type debt offering on Wednesday. A sign of the times? For sure.
By issuing debt with equity-like features, firms can avoid the scrutiny that a straight debt issuance might draw from the credit-rating agencies. To further complicate this offering the debt sold comes in five and 10-year maturities and was denominated across U.S. dollars, euros, and British pounds.
I still have a small long position in BP. Not sure what I think just yet. May just hang on for now, given that the shares are trading below my net basis. They do pay a nice dividend, and the firm is probably the most progressive among the oil majors in moving toward renewable forms of energy production.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 1.542M.
08:30 - Continuing Jobless Claims (Weekly): Last 20.929M.
08:30 - Philadelphia Fed Manufacturing Index (February): Expecting -24, Last -43.1.
08:30 - Leading Indicators (May): Expecting 2.2% m/m , Last -4.4% m/m.
10:30 - Natural Gas Inventories (Weekly): Last +93B cf.
The Fed (All Times Eastern)
12:15 - Speaker: Cleveland Fed Pres. Loretta Mester.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (KR) (1.10)
After the Close: (KFY) (0.39)