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Circuit breaker limits today

Level 1 – S&P must fall 7% – 193.31 pts

Level 2 – S&P must fall 13% – 359.01 pts

Level 3 – S&P must fall 20% – 552.33 pts.

Stocks fell in early pre-market trading and then continued to move lower after the opening bell rang yesterday, as US investors came back from the long holiday weekend. With most of the global markets closed for Easter Monday – there was even less participation coming from Asia and none coming from Europe. The tone was weak – and it was Risk Off as US investors braced themselves for the coming earnings season which starts this morning at 7 am. JPM, JNJ, FRC and WFC will kick it off – GS, MS, C, BAC following on Wednesday and Thursday. Now understand that both JPM and JNJ are Dow stocks, so today is considered a big deal. These two names will set the tone for the Dow. (the most widely watched index in the world – you can say what you want about it because it only considers 30 US companies – but it is about tradition).

What will we see? JPM is expecting to report earnings of $2.14/share while JNJ is expecting to report $1.99/share. At 6:40 JNJ announces and BEATS coming in at $2.30! JPM on the other hand misses the number coming in at $0.83, but beats on sales and trading (expected) but gets hurt on investment banking, credit costs and reserve build. Both stocks are up in pre-market trading. And so the story begins. And markets move higher…

Recall that the estimates have already been slashed as street analysts prepare for the “beauty pageant.” So the question is: Did street analysts slash them so much that they will all “beat” the number? (Helping to set a more positive tone in the middle of this crisis – which would be very convenient). Remember that is the game every quarter – companies “guide” and then analysts estimate and if the company doesn’t like the estimate they “guide” some more – just enough to allow about 78% of the reports to beat the number leaving 22% or so to take the hit. That 78/22 ratio just happens to hit every quarter, miraculously. But that’s another conversation. Let’s see if that holds true this time around…

What will they say? Forget the earnings – those are done, they are history, but here is the rub this time around – we all know to expect weakened numbers – whether they beat or not. There isn’t a question – the next move will depend on what these CEOs have to say about the future and this will be so much more important this time around. We know that at least 300 companies have already said they can’t guide or that they are withdrawing guidance because of the forced “global shutdown” caused by “the virus.” So expect the reaction to be interesting at best. What will the algos do?

As noted – the tone yesterday was weak – this even after our friends at Goldman managed to put out a piece at 8:30 am declaring that the “bottom was in” due to all of the government virus programs coupled with the FED massive stimulus programs (now was the time to BUY). This was (as usual) a big turnaround for GS. Recall that they were projecting a collapse in prices only three weeks ago as the markets were getting creamed, calling for the S&P to trade into the 2000s – or 26% BELOW current levels, which is already off 19% from the highs…

Now the pessimist in me (and so many others) would suggest that the negative call gave them time to “back up the truck” and load up on stocks as prices collapsed, because you can’t tell me that they aren’t intimately aware of government and FED discussions and decisions. I mean GS alum are all over the place in DC – somehow involved in every conversation. They seem to “know” everything that is about to happen. Now what was interesting – is that it was Easter Monday – a day that typically see lower volumes and a trend to the downside. Their call did not get that much attention (although it is today). Yesterday was no different – especially after the run up in stocks last week – causing the market to get ahead of itself. By the end of the day the Dow, S&P and Russell all notched losses – with the Dow off by 328 pts, the S&P off 28 pts and the Russell off by 35 pts. The Nasdaq – interestingly enough gained 38 pts – completely bucking the trend. Was Goldy pushing the tech sector? Is that the sector that they loaded up on? Just sayin’…

Now stocks continue to bounce around and have rallied more than 20% off the March lows as investors WANT to be optimistic and believe that the worst of the virus is behind us but yesterday told a different story. One of concern – as earnings get set to kick off and the hard data is about to reveal the extent of the damage done to the global economy and global stocks.

Questions surrounding the safety of the dividends are all the rage as companies need to manage cash flow and forget hearing about stock buybacks. Those ain’t happening right now – I mean already we know that about 175 companies have already suspended or cut their dividend. Will we hear more?   Earnings in the energy sector are expected now to be down 52% year/year. Industrials – 32%, Consumer Discretionary by 30%, but in this devastation there is sunlight, because earnings in the Communications sector are expected to be up 7%, Tech +2% and Utilities up 2%. That doesn’t feel like much but when compared to their brethren. it’s a huge WIN and those sectors and names will benefit because in the end – we need to communicate, we need technology and utilities will continue benefit because we need water and electricity – so pile on.

Overnight – stocks in Asia all rose with Japan surging 3% after falling 2.3% on Monday, China markets gained 1.9% even after they reported exports and imports both fell year/year, BUT were better than expected. In another “better than expected move” Japan’s Softbank Group (of WeWork fame) surged by 5.24% after beginning the day down 3%, after they announced a loss of $16.73 billion (1.8 Trillion Yen) for the fiscal year 2019 – citing a “deteriorating market environment.” Now look – Softbank has fallen 55% since the February highs, hitting its low on March 23rd – just like so many other names when global markets went into a free fall. But do not despair – because like so many other names around the world – the markets have begun to recover or at least attempt to find a bottom and when they do – then expect prices to adjust. Softbank has regained 75% of that 55% move lower, even in the face of this massive loss – and why is that? Because investors “expected” them to announce a massive loss – it was known – so therefore it wasn’t a surprise at all. The surprise would have been if they reported a larger loss than what they had prepared the markets for but they did not. That just might be the story around the world.  We are expecting losses, we have heard and lived thru this crisis – so unless you are completely numb -none of this will be a surprise.

In Europe – investors are back today. Markets there are open and investors are liking what they see. Corona across the continent appears to be slowing and countries like Italy and Spain are prepping to lift some of the restrictions imposed upon those countries as infections and deaths have declined.  Germany is also creating a plan to get back to work as it appears that the worst is over.

FTSE -0.42%, CAC 40 FLAT, DAX +1.05%, EUROSTOXX +0.57%, SPAIN +0.74% and ITALY +0.46%.

This morning – as the day begins, US futures are surging. Dow futures are up 277 pts, S&Ps are up 28 pts, Nasdaq +115 pts and Russell is showing gains of +20 pts. This as we brace for the earnings reports. Overall – analysts expect to see a decline of 10.2% in year/year comparisons. Since so many analysts had slashed their estimates so much in Mid-March – in a panic move – what we may see is a larger number of “beats” – It is sure to be exciting.

The S&P closed at 2761. While it felt a bit toppy last week – it may not today. Do not be surprised to see a relief rally if earnings today are better than expected, taking us to 2800. I still believe that during the next three weeks of earnings we could see more volatility and a push lower just to test the commitment of the buyers. I suspect that we will find support at 2650, but if we don’t then the next stop could be as low as 2500.

Take good care


Grilled Lobster & Shrimp Scampi Style

Celebrate! Corona is declining and the sun is out. Earnings have started and JNJ and JPM kill it! Beating estimates and sending markets surging. It is time to spark up the grill and start the summer right.  Today’s dish is both lobster and shrimp – done on the grill, wrapped in foil, seasoned with garlic, lemon, parsley and a splash of olive oil (just like a scampi). So simple to prepare and even easier to make.

For the marinade you will need: 6 garlic cloves, some Italian parsley, freshly squeezed lemon juice and lemon zest, and the olive oil. For the seafood – 1 doz. large cleaned and deveined shrimp, and 2 lobster tails.

In the food processor – add the garlic and some of the parsley… pulse to mince and mix well. Next – add in the juice and the zest of one large lemon and a splash of olive oil. Pulse to mix and then remove. Set aside.

Next bring a pot of water to a rolling boil and blanche the lobster tails for 3 or 4 mins… remove – rinse under cool water and set aside. Once cool – cut open the tail lengthwise and spread… (do not completely pull it apart – leave the meat in the shell). Now – massage the marinade all over the shrimp and the lobster – allow it to marinate for 30 mins or so…

Spark up the grill. Make an aluminum pan out of “heavy duty” aluminum foil – folding up the sides and creating a place for the shrimp and lobster to cook. Add the fish – toss in some lemon wedges, a couple “chunks” of butter, a splash of white wine and place on the grill. Cook on high heat until the fish is cooked – no longer than 5 mins. Do not puncture the foil – keep all the juices in the “pan.” Serve with your favorite chilled white wine… in fact try a popular summer Rose. Delish…

Buon Appetito.