Thursday's trading session nearly gave us what we needed to see. Nearly. First, the pall of negativity. The Department of Labor went to the tape with their weekly report that totals those filing for unemployment benefits. Nobody, and I mean nobody, was looking for a number that high -- 6.6 million individual filers was more than 2 million above the highest estimate that I had seen going into that event. Just under 10 million folks in two weeks, and I personally know small business owners that have waited until today to see how realistic it will be to get these government-guaranteed loans, so the potential is there for a third consecutive awful print for this series next week.
Equity markets rallied, certainly not on that news, and it was, in fact, the uneasiest of rallies. Talk of a "Phase Four" fiscal package that seems more probable than not has had a somewhat buoyant impact on stock prices, especially when the idea of an infrastructure-based theme is included in the discussion. The real reason for the Thursday rally, though, was oil. Simply put, WTI Crude futures rallied well off of that $20 support level as news broke that President Trump had been in touch with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman with the hopes that perhaps the two nations putting so much pressure on oil prices might call off their price war, for now. The matter remains unresolved, but at least on Thursday, there was some reason for optimism. Any production cut will almost certainly require U.S. participation.
This brings us to Thursday trading volumes, and what we see in overnight equity/futures markets. Both the S&P 500 and the Nasdaq Composite took back less than half to about one half of Wednesday's selloff. Trading volumes were higher on Thursday than they were on Wednesday at the New York Stock Exchange as well as across the S&P 500. Trading volumes were lower on Thursday than they were on Wednesday at the Nasdaq Market Site, as well as across the Nasdaq Composite. What's the take-away there? Had the positive action on higher volume been more broad-based, I could make a shaky call that the at least the "short-term" lows were in, with a mixed message like this, I cannot. Equity markets remain, for me, in a confirmed downtrend until I see that.
Perhaps even more importantly, remember that I have told you that gaps almost always do fill. Sometimes it takes a while, but this is "technical truth" that happens to be, for the most part, a fact. Take a look at this two week chart of the S&P 500, the chart for the Nasdaq Composite over this period is very similar.
What you will see is that on Thursday, the index walked itself up to the edge of the "gap down" Wednesday opening, but stopped short of entering that arena. The index has also never come that close to approaching the zone covered by last Tuesday's "gap up" opening. The implication? As if you had not already guessed... more volatility.
The Noise
What to do with what will be a meaningless print for nonfarm payrolls? For one, the survey is done earlier in the month, so though economists expect to see contraction in this number, there will not be a an honest reflection of the state of the labor force that we see in something closer to real-time in the weekly print for jobless claims. Using the numbers for those filings over the past two weeks, the "real-time" unemployment rate is very likely already above 10%, and rising every day.
I don't know how closely readers follow macroeconomic data from abroad. Equity index futures traded here in the U.S. certainly did react as service sector PMIs across Europe were revised for the month of March. Numbers hit the tape that I do not think I have ever seen before for headline PMI surveys: 27.4 for France, 23.0 for Spain, and an unbelievable 17.4 for poor Italy. Is that our future? Every one of those nations has shut down their economies through necessity, as have we here in the U.S., at least regionally.
Policy
As of this past Wednesday, the Federal Reserve's balance sheet had grown $557 billion since the Wednesday (March 25) prior, to stand at $5.811 trillion. Understand that this is but a pit stop on the way to the other side of this pandemic, and there will not soon be an end to the U.S. government's response to this public health crisis that has created a titanic public financial crisis that will, later on, require sustained fiscal stimulus.
I see no way around that, and I see no way to finance what must be done with the Fed simply creating a larger monetary (fiat) base. In other words, there really is no alternative to monetizing national (state & local? corporate? household?) debt loads in real-time. Debase the currency? One would think this concept that would damage those who have saved, and those trying to live on a fixed income to be a very real threat. Then again, what is the alternative? Re-opening the economy amid a pandemic that human beings have no natural immunity against?
Did you see Dallas Fed Pres. Robert Kaplan on CNBC yesterday? He was quite frank. He stated that "The markets now are working reasonably well." There is truth in that statement. The Fed had created a liquid environment. The task has been enormous in implementation and will require the FOMC, at least in my opinion, to keep playing "Whack-a-Mole" as problem spots arise. Kaplan also stated something I think we all know at this point... "We actually need stimulus from here. And so it's not surprising that's beginning to be discussed. It's not a Fed decision. That's a Congress-fiscal authority decision, but its going to be needed." It may not be a Fed decision... but most of it will land on the Fed's balance sheet. Just saying. $9 trillion? $10 trillion? Spin the wheel. Everyone goes home with a prize.
Did You Notice...
That the SEC will allow public companies more time to deliver on Q1 earnings? I think this extension will be taken advantage of by more firms than one might think as sales will almost certainly look awful, not be comparable to past periods in any way, and certainly not form any kind of basis to project guidance.
Currently, according to FactSet, consensus for Q1 earnings "growth" across the S&P 500 now stands at -5.2%, Q2 at -10%, and Q3 at -1.1%. Horrific? Yes. Think of the easy comps in 2021 if you must. I know, that concept offers little solace at this time.
What The...?
Midday Thursday, 3M (MMM) CEO Mike Roman is quoted at the Wall Street Journal as saying "The demand we have exceeds our production capacity." This came in reference to the life-saving N95 face mask, and those made by MMM are considered to be the very best by health care workers. 3M reportedly has doubled production of the mask since January, and is trying to double production again by year's end.
That will not be enough to meet peak demand: According to estimates at the Department of Health and Human Services, U.S. health care workers would need 300 million N95 masks monthly in order to confront this pandemic. As of this month, 3M is producing 100 million of these masks (per month) globally, but only 35 million in the U.S., and will have to import some from abroad. The firm has stated that it is trying to get U.S. production up to 50 million masks per month by June. This, while Honeywell (HON) is able to manufacture as many as 20 million masks a month, and smaller manufacturers are able to contribute another 10 million. Clearly, we have a problem.
Then, last night on Fox News, Jared Moskowitz who is the head of Florida's Division of Emergency Management basically accused 3M's distributors of prioritizing foreign buyers who are outbidding domestic buyers. Obviously, I have no idea what is actually going on, but readers need to see or read that story for itself. What I do know is that the story provoked an angry tweet from POTUS. Take a look at this:
We hit 3M hard today after seeing what they were doing with their Masks. "P Act" all the way. Big surprise to many in government as to what they were doing - will have a big price to pay!
— Donald J. Trump (@realDonaldTrump) April 3, 2020
I would think that this story is not quite done playing out. Stay nimble if in this name. No telling what comes up next.
More on "Working Remotely"
You've all read the recent news that circles around Zoom Video (ZM) . I am not out of that name, but have reduced exposure. The cash increase could be slated for a Microsoft (MSFT) add, at least that idea is bouncing around my cranium at zero-dark thirty Friday morning.
Docusign (DOCU) had a tough day on Thursday. I still believe this name thrives and will add below $83 if it gets there. Oh, that brings up ServiceNow (NOW) , a name that I missed on last week's pop. Well, readers, we already have a second chance. I think I move on just a 1/16 of a position in the low $250s, if we see it and another 1/16 to make 1/8 on a retest of the March lows.
Nvidia (NVDA) seems to be either forming a warped-looking head and shoulders pattern, or the end stages of a cup with handle. I have not decided just yet. Obviously one gets me more fired up than the other. Watching.
March Unemployment Situation (08:30 ET)
Non-Farm Payrolls: Last 273K.
Unemployment Rate: Last 3.5%.
Underemployment Rate: Last 7.0%.
Participation Rate: Last 63.4%.
Average Hourly Earnings: Last 3.0% y/y.
Average Weekly Hours: Last 34.4 hours.
Other Economics
09:45 - Markit Services PMI (Mar-F): Flashed 39.1.
10:00 - ISM Non- Manufacturing Index (Mar): Expecting 48.0, Last 57.9.
13:00 - Baker Hughes Oil Rig Count (Weekly): Last 624.
The Fed (All Times Eastern)
No scheduled public appearances.
