The momo guys (momentum) were at it again. While the headlines are still fairly concerning, the momo guys are completely ignoring it, choosing instead to focus on the robust US macro data, which is ok, until it isn’t but we’ll discuss that in a bit… sending both the S&P and Nasdaq to new all-time highs. While the US macro data remains robust — all the talk of the virus and how it is set to turn China’s economy upside down means little as the algos (programmed by quants) continue to drive the market higher…
The S&P has now made its 9th record close this year, rising 0.7% to close at 3352… Recall, we are only 6 weeks into the year and the S&P has made 9 record closes… the Nasdaq made its 11th record close in the same 6 weeks, adding 1.1% to end the day at 9628! While the Dow and Russell did not ring the bell -per se — they also managed to advance rising 174 pts or 0.6% and 10 pts or 0.66% respectively.
The story is very much the same. “Better than expected” corporate earnings and better macro data are seemingly outweighing ANY fear that the coronavirus will topple the global economy, never mind the US economy. Last week’s jobs reports showed us that more and more Americans are finding work and are getting hired, a very positive sign as we move further. Further into the election year, talk of TAX Cut 2.0 is all the rage and the algos can’t get enough, never mind continued accommodative interest rate policy both here and abroad, helping to drive and support the global markets. With the NH primary today, we are sure to hear more about how the US economy is not working for everyone, which is tough to see when more and more Americans are going to work and the relevant macro data points remain strong…
I mean how can you really say that the economy is NOT working when we have unemployment at 50-year lows, macroeconomic data continuing to show strength, GDP rising, earnings continuing to beat the estimates and a FED that remains accommodative? Is it not working because we don’t have free healthcare? Or free education? Or elimination of student debt? Is that how we are defining whether or not the US economy is working?
We’ve got a couple of “key events” today. First is the NH primary, and the current status has Bernie out in front. He should be as he is from a neighboring state (VT), Petey is next, interesting because he is not from the Northeast. Lizzy falls to third place, which speaks volumes about how she is faring considering she also comes from neighboring state (MA). Amy runs a distant fourth, which is setting her up to be the number one choice for the VP spot on the Democratic ticket this year. She is a woman from the mid-west who is still holding on, while Joey falls a distant fifth in the race, a position he doesn’t understand. Mikey (Bloomberg) and Deval (Patrick) don’t show at all, (yet). So the market is telling you that the idea that Bernie could be the challenger to Donny in November means that Donny wins. And the market surges. And while Lizzy appears to be losing steam by the day, She is not giving up yet, but today and month end could see that change quickly. Nevada is next up on the 22nd with South Carolina due on the 29th. The final blow will come on Tuesday March 3, otherwise known as Super Tuesday, when we will get 17 states and 1345 delegates up for grabs.
The OTHER KEY event today is the first showing of the bi-annual FED testimony, the Monetary Policy Report (formerly known as Humphrey Hawkins). We will see Jay (Powell) take to the hill to present his outlook to the House financial services committee and tomorrow to the Senate Banking & Finance Committee. This is a bi-annual event and is usually a non-event, as most of the elected officials don’t even understand the questions they are asking, never mind the answer they get. What is important about this time is that it is an election year. The FED wants to remain on hold (60%), leaving rates unchanged. Yet the market is pricing in at least one rate cut this year, if not two. The coronavirus is keeping the FED and other central banks on the edge as they try to forecast the damage this might cause to the global economy and then how they will react to it. My sense is that he will play both sides of the fence, leaving rates unchanged but open to cutting if the virus should create more turmoil than is currently expected (30%). And if the virus does NOT bring the global economy to its knees, and China recovers quickly, which they will do, he could be concerned that the global economy could overheat faster, causing him to suggest a possible hike (10%). In the end, my sense is that the market is expecting a “dovish” testimony, thus the surge, anything other will see the market back off quickly.
This morning global markets are all higher. US futures are suggesting another new record is about to be set today, as the focus is on earnings, FED testimony and the NH primary. There is no macro data to report. Earnings today include HAS (Hasbro), UA (Under Armour), LYFT and WU (Western Union), hardly a group that will drive the markets higher or lower. So let’s not say that the action is being driven by earnings today! And while all of the headlines appear to be negative surrounding the virus, global markets do not seem to care. (Take a peek)
- • “Coronavirus outbreak could sink China’s smartphone shipments by 30% in Q1”
- • “Beijing scrambles to support economy as coronavirus outbreak batters business”
- • “China’s businesses struggle to resume work”
Now remember, the markets won’t care until they do. While the virus will not price stocks in the long term, it will continue to cause markets to be volatile. Remember, the Nasdaq is up 7.4% so far this year with the S&P up 3.75%, the Dow up 2.6% and the Russell up 1%. Any change in the virus outlook can certainly shave some of these gains and any change in FED outlook can also change these gains. That is much more significant than the prior, because FED policy DOES drive fundamentals and fundamentals drive stock prices.
Asian markets move higher, ignoring the virus. Last week JPM cut their estimates of 1Q GDP for China, and the risk that others are sure to follow is gaining momentum. The risk that we will see even larger downgrades is also gaining momentum, yet the algos don’t care.
By the end of the day we saw: Japan -0.60%, Hong Kong +1.26%, China +0.93% and ASX +0.61%.
European markets are surging with the Eurostoxx index setting a new high as the day dawns. While the virus infection rate and death rate continues to move up, again, the markets do not seem to care (today). Here is the line that makes no sense at all:
“European shares traded higher on Tuesday morning as investors continue to monitor the spread of the coronavirus and its effect on the global economy.” (You can replace European with Asian and US) so as the virus gets worse the markets keep trending higher. As you read the article you see that it also says:
the new strain of coronavirus, which originates in the Chinese city of Wuhan, has infected 42,638 people and killed 1,016 across mainland China. However, a slowing of the rate of new cases has given global stock markets some upward momentum.”
So it is the slowing rate of new cases that has caused the markets to surge, suggesting that this too shall pass, sooner rather than later…
The latest political uncertainty across the EZ (Eurozone) is causing some angst for the markets, but not enough to cause them to pause at all. The latest is Italy (again) as former PM Matteo Renzi – Italia Viva Party is aligned with the 5 Star Movement and Democratic Party and has threatened a “no-confidence” motion against his own justice minister. The others, Ireland and Germany, continue to simmer on the back burner. As of 5 am, European markets are UP.
FTSE +0.66%, CAC 40 +0.37%, DAX +0.71%, EUROSTOXX +0.50%, SPAIN +0.14% and ITALY +0.30%.
US futures are surging on a perceived “Bernie” win in NH, a dovish policy statement from the Fed, talk of TAX Cut 2.0 and a slowing rate of infections from the coronavirus. Dow futures are +60pts, S&P +6 pts, Nasdaq +32 pts and the Russell +4 pts. Do not be surprised to see the market breathe a sigh of relief after it hears from Jay. That means it we could see the indexes turn lower even if he is dovish, as we may have experienced a “buy the rumor/sell the news event.” The S&P is at a new high, the trend line drawn from July 2019 highs does suggest we still have room to grow. Resistance is at 3390-ish (only 40 pts away, or just over 1%).
***Breaking news: In the early primaries in NH – when polls opened before dawn – Amy and Mikey are the winners…Bernie was a no show!! And the world turns….
Take good care.
Grilled LambChops w/Orange Butter
Orange/ Cilantro Butter – easy to make and very versatile on a number of meats. Now like any herb butter – this is simple to make… You will need – 1 stick of butter, fresh minced cilantro, ground coriander, orange zest, s&p.
You can make the butter ahead of time and put in the freezer so that it is ready to use and always have some for a later time. It never hurts to make them and have them available to you in a flash. Remember – herbed butters are your creation – make what you like. Try different combinations of herbs to arrive at a new favorite.
Let the butter rest on the counter for about 1 hr so that it softens. Do not melt the butter in the microwave or on the stove – you do not want to cook the butter – capisce?
In a bowl – add the butter, minced cilantro (like 3 tblsp), a dash of coriander and about 1 tsp of orange zest – mix well – now season with s&p…cover and refrigerate for about 20 mins. Now remove the mixture from the fridge and place in wax paper – now ever so gently – form into a log – wrap in saran wrap and put in the freezer so that it hardens up.
Preheat the grill
Brush your chops with a bit of olive oil and then season with s&p – a nice thick cut chop on the grill works well with this.
Now place the chops on the grill – careful not burn. Should be about 5 / 8 mins on each side depending on thickness – you want a nice pink center. Remove from the grill, cover and let rest for 3 mins or so. Now place on a warmed plate and top with a slice of the Orange/Cilantro butter. Serve this with a wild grain rice and a green veggie. Enjoy with a nice Pinot Noir.