Innocuous is defined as not harmful or offensive. In yesterday’s note, I suggested that at some point we would get an innocuous event that would cause markets to back off a bit. Was yesterday’s news “that event?”
Stocks closed lower yesterday. It’s “Sleepless in Seattle” as the US has its first case of CoronaVirus. The Senate begins the impeachment proceedings, Donny gives the keynote address at Davos, and urges the FED to CUT rates again while also hinting at fresh tariff threats on Europe. Lonnie Musk is preparing to mow down a forest to build a Gigafactory in Germany. Moody’s downgrades Hong Kong and the IMF cut global growth for 2020. All while BA attempts to take out a $10 billion bridge loan while they hint that the FAA has no intention of signing off on the 737 MAX until at least June/July 2020. That sent the stock spiraling out of control, down 5.5% before they stopped trading at 2:14 pm. At the same time, the Dow was off by 200 pts and the S&P was down 12 pts, and going lower. So the move to “halt trading” in BA helped to save the Dow and S&P from plummeting even more. While it was sold as “news pending,” was it really about “halting the selloff?” (wink, wink…)
Those were just some of the innocuous things that I questioned yesterday that might serve as a reason to book some profits. Look, the market has been looking for a reason to sell off and when we are making new high after new high, you have to realize that anything could light the fuse. Taken alone, none of them would have really caused anyone to pay attention. Yet when they all come together and happen at the same time, it just sets it up for so re-consideration. By mid-day the indexes were at their worst levels but then they halted trading of BA. When the news about the FAA came out, that did help to stop the bleed (as BA is a member of the Dow and the S&P). The Dow, S&P, Nasdaq, and Russell found support (think, stopped going down), attempted to rally, got hit again, and then attempted to rally into the bell. The algos had to also deal with the breaking news that the coronavirus is now in the US, bringing back memories of SARS, that other Asian-born virus that rocked the world in late January/February 2003 and spread around the world lasting for six months. That helped send the S&P down near 12%, now that wasn’t the only issue then. But, taken with all of the other “stuff,” it made for a weaker first quarter.
By the end of the day, the Dow gave up 123 pts, the S&P lost 8 pts, the Nasdaq fell by 18 pts and the Russell gave up 14 pts. Hardly a reason to burn the house down!
As the day began, we caught the early CNBC Squawk Box Special, LIVE from DAVOS, as Becky, Joey and Andy presented interview after interview with some of the paparazzi that are in that small mountain town in Switzerland. They all offered their insight and guidance to a world gone nuts. Remember that the World Economic Forum (WEF) is a non-profit that is “committed to improving the state of the world by engaging business, political, academic and other leaders of society to shape global, regional and industry agendas.” It’s all very fancy and anyone who is anyone is sure to be seen on campus! This boondoggle will last through Thursday this week. Expect to hear more today.
In any event, there were no real earnings reports yesterday until after the bell, when we found out that NFLX. IBM COF, IBKR & HAL all beat. UAL and AMTD failed to hit the number. Now NFLX did miss on US subscriber growth, but beat their targets for international growth (a positive I guess). IBM finally posted an increase (ever so slight) in revenue ending that streak of disasters we kept hearing about quarter after quarter, (another positive). UAL had fallen 4% during the day and then rallied in the after-hours session after their reports showed that revenues did climb even after having to cancel and rework their flight schedules due to the grounding of the 737Max, of which they fly 14 of them, and had expected to receive another 16 this year.
Then the sun set on the US and rose over the South China Sea and it was Wednesday. Stocks in Asia, having had some time to consider all of the implications, found support and ended the day higher. The BoK (Bank of Korea) reveals that the South Korean economy grew at 1.2%, the fastest expansion since the summer of 2017. Hong Kong rebounded after the beating it took on Tuesday (after the algos realized that the small cut by Moody’s is really a non-event). China advanced after they said they would start testing everyone for the virus!
At the end of the day – Japan + 0.7%, Hong Kong +1.27%, China +0.43% and ASX +0.94%.
In Europe, markets there are also making a rebound after the angst yesterday. In the end, large asset managers are using the latest potpourri of news as an opportunity to BUY rather than a reason to sell. All eyes will remain on earnings and any news out of DAVOS that might hint at something. Opinions of some of the largest hedge funds out there are nice, but they all represent their own books, so take it with a grain of salt. Go with your gut.
As the sun rises – the FTSE is +0.25%, CAC 40 +0.22%, DAX +0.39%, EUROSTOXX +0.20%, SPAIN +0.09% AND ITALY +0.10%.
US futures are UP! As nothing, even these innocuous events can hold her back. As of 4 am, the Dow futures are +106 pts, S&Ps are +15 pts, Nasdaq +65 pts, and the Russell is ahead by 9 pts. Now this can all change in the next 5 hours, but it doesn’t feel like it will. The overall tone remains bullish and until there is something else to kick us in the gut, then it’s up from here.
Economic data today includes Mortgage Apps and Existing Home Sales – exp to be +1.5%. Earnings before the open to include: ABT, JNJ, ALLY, BKR, APH & PLD to name a few. After the close we will hear from PTC, TXN, RJF.
The S&P ended Friday at 3320 and appears to want to challenge Friday’s closing high at 3329. If the futures hold tight, we will do so on the opening trade. Again, the trend line can only guide us as we are in uncharted territory. While we can identify support levels, it is only a guess as to where the next resistance level will be. Stay involved, stick with the plan, but don’t get caught up in the excitement, do not make emotional decisions.
Oil is down 31 cents trading at $58.07, after the IEA (International Energy Administration) reported that they expect a “surplus” in the first half of the year, easing concerns of any disruption from the Iranians, Libyans or Iraqis. Fatih Birol, the Head of the IEA said “I see an abundance of energy supply in terms of oil and gas” while attending the WEF. Oil is now comfortably back in the $55/$60 range.
Gold, which had spiked three weeks ago when geo-political tensions ran high has settled back into the $1555 range, still ahead of where it was prior to that event, but off the highs of $1615/oz. It feels like we are in the $1550/$1600 range for now, with little reason to spike.
Take good care.
Sweet Sausage Risotto
Risotto is a dish of Arborio rice cooked in a broth (chicken, beef or veggie) to a creamy consistency. Always complemented with Parmigiana cheese, butter and onion. It is a staple in Italy and is usually found here as a first course in place of a pasta. Today’s dish can be a first or main course depending on how hungry you are!
You will need: olive oil, butter, onions, sweet Italian sausage (removed from casing), minced garlic, thyme, Arborio Rice, white wine, chicken broth, frozen peas and Parmegiana Cheese.
In a sauce pan – heat up about 6 cups of chicken broth.
In a heavy pan – heat the oil and ¼ stick of butter over med heat. Add chopped onion and sauté until soft and translucent. Next add the sausage meat and brown. When ready add minced garlic – no more than a tbsp., and some thyme… do not overdo… about ¾ tsp. You can always add less and then taste. Sauté for another couple of mins to blend the flavors. Now add 1 ¼ cup of Arborio Rice and about 1 cup of dry white wine… mix well and stir until the wine is absorbed. Season with a bit of pepper. NO SALT needed.
Now – one ladle at a time… add the hot stock to the rice and stir… you must stay at the stove – this is key. You need to stir the rice and not allow it to stick. As the stock is absorbed – add another cup and stir… continue this until the rice is tender and creamy… maybe like 20 mins… but taste as you go to determine. (You will not need all of the stock – but just in case you did it wrong you can always try to save by adding a bit more stock.)
Now add 1 cup + of frozen peas… you can always add more if you like peas… and a handful of grated Parmigiana Cheese. Stir well for about another 5 mins so that the peas have time to warm up… taste. Taste good? then you are ready to serve… If not – keep stirring. Do not let the rice dry out… This meal should take you about 30 mins – (40 max).
Serve in warmed bowls and garnish with a bit of chopped Parsley… always have extra cheese on the table for your guests.