Behind That Hill?
If Napoleon only knew what Wellington had concealed from him behind that ridge at Waterloo, that battle would have been fought quite differently. While most folks slept, well most folks living west of the Atlantic Ocean anyway, the Organization for Economic Co-operation and Development, OECD for short, headquartered in Paris, France, was busy.
The 36-member nation group whose mission is really to promote free markets as well as free trade, made a number of projections for global and national economic "growth" for this full year, as well as next. The OECD built in an adjustment for a potential second wave of the spread of the coronavirus that halted economic activity through the first half of this year.
The caution expressed makes sense -- I do understand making projections based upon what has happened while trying to adjust for current trends as well as potential economic impacts that could result from shifts in policy. But I do not understand any projections based upon a second wave outbreak of Covid-19 infections, as the severity of, and depth of any second wave would itself be unpredictable. I feel this potential reality, though very real, to be a purely "unquantifiable" input at this time.
For me, that does not mean that investors should walk around with a permanent smile, unprepared for the worst, with their collective heads in the sand. This simply means that mild optimism based on partially successful economic reopenings on local levels are perhaps called for in the moment, as long as one remains flexible. There will be setbacks, and there will be times where caution replaces aggression out of necessity. Several U.S. states that were already thought to have handled the initial spread of this awful disease very well are now showing signs of struggling to maintain that early success.
For those keenly interested, the OECD sees something like a V-shaped recovery that stops part of the way up. In other words, they see the "reverse square root" symbol recovery that Danny Blanchflower at Dartmouth College has been speaking of since the beginning of this pandemic, and we borrowed here, making itself an economic force in the U.S. For the U.S., the OECD sees 2020 GDP of -7.3%, with a rebound of +4.1% for 2021 should there not be a significant second wave of infection. With a second wave, the OECD sees 2020 at -8.5%, with 2021 at +1.9%. The projected OECD numbers are similarly discouraging across the globe.
Before That, This...
White House economic advisor Kevin Hassert could not have been more clear. "The odds of a Phase Four (fiscal support) deal are very, very high". No mincing words there. In an interview with the Wall Street Journal's John Bussey, Hassert said he expects to see action even if some of the macro continues to outperform expectations.
Hassert is looking for job creation of 3.5M to 4M for the month of June. That said, you and I both know how accurate the community of economists has been of late. Hassert expresses the need to create an environment conducive to sustaining the upward trajectory once we know that we have "lift-off." As I have stated, to get the nation to a Phase Four fiscal package, we'll need the cooperation of the legislature. That's where the effort slows down. This must be done prior to August. Either that, or maybe those in D.C. actually work into their recess period. Crazier things have happened.
More immediately, today (Wednesday) is Fed Day. No, I don't think the FOMC will take any bold "headline" type action today. The target range for the Fed Funds Rate will remain between 0% and 0.25%. There will be some media focus placed on the Fed's dot plot, as well as their quarterly economic projections. Neither have ever been particularly accurate, and neither is even necessary. The Fed would do well to just make their official statements and then explain actions to be implemented at the press conference.
Today's questions will swirl around still-to-be-implemented programs, the success of programs already underway, the ability of the economy to recover, unemployment, short-term disinflationary risk versus long term potential for consumer level inflation and the place of the central bank relative to the needs of the U.S. Treasury Department in these times.
Tuesday's regular session was really one of indecision. There was a clear reversal of some very recent trends. The Tech sector re-established some leadership, as did internet type names. Cyclicals, or growth reliant stocks, struggled. Bond traders bought the long end of the U.S. Treasury yield curve. Crude has come in a bit and then traded sideways. That was ahead of the API data last night that put more pressure on WTI.
The S&P 500 backed off a bit. Small-caps, industrials and transports even more. The Nasdaq Composite attracted some buy side, and the Nasdaq 100 a bit more, as that index lists no financials among its membership. Trading volume was relatively light at both of New York's primary equity exchanges. Losers beat winners decisively at both exchanges, but that gap was far narrower between declining volume and advancing volume. I would be slow to chalk up Tuesday's mild selloff to anything beyond profit taking until we hear from Fed Chair Jerome Powell on Wednesday afternoon. That's when the gloves may or may not come off.
I think the quote of the day on Tuesday belonged to DoubleLine Capital CEO Jeffrey Gundlach -- taken from a webcast, speaking about future trends in employment as a result of a broad shift to working from home for large groups of laborers.
Gundlach said "What people may have learned for white-collar services jobs, in particular, during the work-from-home lockdown situation, at least in my perspective -- I've talked to a lot of my peers on this -- I kind of learned who was really doing the work and who was not really doing as much work as it looked like on paper that they might have been doing." I'll write it for whoever it is that he had in his mind when he said that... Uh oh.
Chewy, Inc (CHWY) reported Q1 EPS of -$0.12, on Tuesday night. That was a solid beat. Revenue landed at $1.62B, up 45.9% on an annual basis, and also a beat. Why are the shares trading lower overnight? Maybe the fact that CHWY is already up 90% in just three months. Maybe the slight miss of consensus for gross margin.
The facts are the facts. Adjusted EBITDA has turned positive. Net sales per active user are growing rapidly, up 14% year over year. No, I don't buy this one today either, but the next time we see a down week or so for equity markets, if I am not up to my elbows in alligators? Yeah, this one is now on the wishlist. Everyone is annoyed when they realize that they are running low on pet food.
My Worst Trade of 2020 (was profitable)
Okay, okay... my worst trade of 2020 was certainly not profitable. My stupidest trade was. That's a more accurate way to put it. Hands down. Apple (AAPL) . Don't get me wrong. I have traded Apple this year quite profitably. More than once.
Owning these shares and not trading them would have been more profitable. At this point, a lot more profitable. Listen to Jim Cramer. I know that. I already knew that. Another name that I will have to wait on to re-enter.
That said, the firm's move toward the in-house manufacture of Mac ships will not only, in the firm's opinion, improve speed as well as power, but this is also a positive for gross margin (by maybe 500 basis points) for the products directly impacted. What does this do to Intel (INTC) , the firm providing these ships since 2005?
It is probably not the end of the world, though clearly this is a business one would rather not lose, at least this loss does not come at the hands of a direct competitor such as Advanced Micro Devices (AMD) . This is a bruise, not a broken arm.
Economics (All Times Eastern)
08:30 - CPI (May): Expecting 0.3% y/y, Last 0.3% y/y.
08:30 - Core CPI (May): Expecting 1.3% y/y, Last 1.4% y/y.
10:30 - Oil Inventories (Weekly): Last -2.077M.
10:30 - Gasoline Stocks (Weekly): Last +2.796M.
14:00 - Federal Budget Statement (May): Last $-737.9B.
The Fed (All Times Eastern)
14:00 - FOMC Policy Decision.
14:00 - FOMC Economic Projections.
14:30 - FOMC Press Conference.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (UNFI) (1.41)