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Circuit breaker limits today
Level 1 – S&P must fall 7% – 194.84 pts
Level 2 – S&P must fall 13% – 361.84 pts
Level 3 – S&P must fall 20% – 556.67 pts.
The economic data was NOT good. In fact, it was horrible. Industrial Production (IP) fell by 5.4% – month/month and was the biggest recorded drop since 1946. (Industrial production is a measure of factory, utility and mining output – including oil and gas production) – Manufacturing fell by 6.3% month/month – also registering the biggest drop since the WWII. Home Builder confidence plunged by 42 pts, Capacity Utilization dropped, Retails Sales fell out of bed, Retail Sales ex gas and autos also lower. Then at 2 pm the FED released its report on the state of the economy by regions. It’s called the Beige Book – and guess what that showed? Yes sir – a sharp and abrupt contraction throughout the country – “resulting in lost jobs and lower wages” (no kidding!). And to add insult to injury the report shows that companies expect conditions to “worsen” in the months ahead – leaving many analysts to use words like ‘unprecedented’, ‘unheard of’, “unparalleled” as many took to the airwaves trying to make sense of it all.
And by now you know that the IMF slashed and burned its forecast for the US economy – taking it from +3% to -3%, a pace that is double the decline witnessed during the GFC (Great Financial Crisis) of 2008/2009. They also said that the global economy is “almost certainly” already in contraction mode. (Again, not a positive.)
All this on top of slew of earnings announcements that only reiterate the current state of the union. Look – the market needs to factor in the uncertainties that lie ahead – and while it is trying to do – the extent of the damage that these numbers suggest – makes it more difficult from day to day. Valuations estimates for the S&P remain difficult to determine and in fact you are getting some analysts that refuse to even try. The data changes so rapidly from day to day that a valuation figure today can be blown out of the water tomorrow, reminding us of the recent Goldman Sach’s call. One day “the bottom is in” so go out and BUY everything and the next day suggests that this crisis will make the GFC look like a picnic and that would suggest SELL everything! Thus the psychotic behavior of the algos that whips the market around until everyone is exhausted. All this tells me is that while passive investing (think one stop shopping ETF style) may work in a complacent, one way boring market, it does NOT work when “it” hits the fan! Events like this will make investors recognize that active investing (having a human being at the wheel) is far better than allowing the process to be put on auto-pilot in a passive strategy.
The market and investors need to determine the economic reality and the earnings reality that are now beginning to reveal themselves. And in the end – no one knows what the economy is going to look like next year. In fact – what IS clear is that we are not out of the woods by any stretch just yet – because the internal damage suffered in the markets needs to heal and that doesn’t happen overnight and nor does a bottom. But it does happen. The healing process is working, but we may continue to get the volatile moves that we are seeing as the market tests investor commitment.
Stocks began the day weak and ended the day weaker with the Dow down by 445 pts or 1.8%, the S&P lost 62 pts or 2.2%, the Nasdaq gave up 122 pts or 1.4% and the Russell – once again took it the hardest – falling 54 pts or 4.3%.
Remember – we came galloping into February – markets around the world surging. In fact, it was the week of February 17th that saw the Dow, S&P and the Nasdaq making NEW highs, completely ignoring the warning bells being rung from Asia as the virus spread across that region. US economic data was robust – unemployment at historical lows, GDP running nearly +3%, Jobless claims breaching 200k a week, Retail Sales strong, Housing strong, Capacity Utilization strong, wages rising all while inflation remained tame. By the end of March – the world had changed. The virus, which began in China and had infected that side of the world, now invaded Europe – planting itself solidly in the Mother Country. Then hopped on a plane and invaded the US. In fact – it hit the US from both sides – the East Coast and the West Coast as planes came from Europe and planes came from Asia. By the end of March – the devastation was real – not only in the US but around the world as whole countries shut down and locked their citizens in place. Businesses were forced to shut down, Millions out of work began to file for unemployment, “Icons of American Commerce” forced to shut down, as the whole country came to a near standstill and sought government aid. Major American cities becoming ghost towns. Before you knew it – unemployment claims surged to more than 10 million and that was just within 2 weeks. Today’s Initial Jobless Claims report is expected to surge by another 5.5 million, while the Continuing claims number pushes up against 13 million. The FED and the government coming to the “perceived” rescue – throwing new lending programs, slashing interest rates, and handing out untold sums of money to try and keep the economy on life support.
So it was written… No one should expect that this is just gonna go away – I mean it will go away but this ain’t gonna be easy. The earnings that we are about to see (and have seen so far) only tell part of the story, the coming economic data and the pace at which the world normalizes will tell the other parts of the story. Bankruptcies, foreclosures, loan defaults are to be expected – In fact we learned that the major US banks have so far put aside some $25 billion to cover these losses and we haven’t even gotten thru all the banks yet!
Earnings today include BK, MS, KEY (more banks and more loan loss provisions), UAL, BLK, ABT, OMC, and RAD – all before the opening…
Economic data includes Initial Jobless Claims of 5.5 million, Continuing Claims of 13.2 million, Housing Starts -18.7% m/m, Building Permits down 10% month/month.
Look – earnings are not going to be good. We know this – but what we don’t really know is the extent of the destruction of macro data, the extent of the continued lockdown and the course of this virus. Will it calm as we move into summer? Will it come back once we relax social distancing rules? Will it come back next winter? Will we succeed in finding a vaccine? These are all great questions but ones with no answers (yet) – so stay awake, the ride is not over.
This morning – there is turn in sentiment. US futures which had been down overnight have turned the corner and are now UP – Dow futures are up 76 pts, S&Ps ahead by 13 pts, the Nasdaq is up 63 pts and the Russell is up 3 pts. Word that the virus may have peaked in the US and is now in decline and talk of re-opening the country is now in the headlines. In fact, Trump is expected to make another announcement today (3 pm EST). It will be related to when and how we will re-open and re-engage. Stocks will remain skittish, responding to the headline of the day. The swift and painful selloff that took place in March wiped out years of gains and that hurts. But the recovery is under way and while we may be up today. I do expect the market to test lower again (S&P 2500-ish) before this earnings season is over. And if 2500 doesn’t hold – then the March lows of 2200 would be the next stop…
OIL broke $20/barrel again on Wednesday as the official data provided by the Energy Information Administration showed that US inventories surged the most on record. This suggests that US producers may not have a choice about whether to deepen the cuts or not as the crisis continues to ravage demand. Look, US refiners are already operating at just 69% of capacity – the last time that happened was in September 2008. This morning oil is holding steady at $20.23/barrel – leaving us in the $20/$20.50 range.
European stocks are in the plus column – many European countries beginning to lift restrictions on living as they prepare to reopen for business. Germany is set to begin re-opening on Monday for any shop that can implement “good hygiene” (I guess that is the new normal) with schools to get back to work in early May. Investors there paying close attention to today’s US eco data as well as local macro and earnings data – which is not expected to be good – but the markets know this.
FTSE +0.11%, CAC 40 + 0.67%, DAX +0.9%, EUROSTOXX +0.83%, SPAIN + 0.08% and ITALY +1.34% – This as the virus declines…
The Asian market is mixed but mostly lower… Japan -1.33%, Hong Kong -0.58%, China +0.13% and ASX -0.92%. This morning – news that Chinese citizens in Beijing now have personal BARCODES – on a card – that details all kinds of information. Where they’ve been, what their health history is, have the left the city etc. that they must show in order to gain entry or exit into or out of their apt buildings, office buildings, restaurants, stores, etc. Is this an issue for anyone else? Or is it just me? Beginning to feel just a bit like Orson Welles’ 1984, a story takes place in an imagined future, the year was 1984. The book was written in 1949. When much of the world has fallen victim to a perpetual war (in this case COVID 19), ever present government surveillance (Chinese Government), denialism or what is known as historical revision (as they try to deflect the origin of the virus) and lots of propaganda. Just sayin’. It is interesting…
Take good care
You will need: Pork Tenderloin (or the thick cut chops), olive oil, Dijon mustard, large white onion, peeled & sliced Apples (I like the red delicious – but many use Granny Smiths) and White wine.
Preheat the oven to 450 degrees… season the pork with s&p…
Now in a sauté pan that you can put in the oven – not a teflon coated one… heat up olive oil… add the pork tenderloin or the chops… brown on all sides – maybe like 5 or 8 mins… remove and set aside. When it cools down a bit – rub the Dijon mustard into the pork… (do not overdo it). Now add a bit more oil to the pan… add in the sliced onions and sliced apples… sauté for about 5 mins… now spread around and re-introduce the pork to the pan…
Now put the pan in the oven and roast for about 20 mins max… (if using chops – maybe 10 mins max). Remove from oven, now remove the pork only and cover with foil… Next add white wine to the pan and turn up the heat – cook for 3 mins or so… turn off the heat.
If using tenderloin – then slice liberally into thick pieces. Arrange a bed of onion/apple mixture on the plate and delicately place the pork on top. Serve immediately with a mixed green salad dressed in an Apple Vinaigrette dressing…
Dressing: Dijon mustard, apple juice, apple cider vinegar, olive oil, s&p. bring the apple juice to a boil and then remove from heat… let stand. In a bowl add Dijon mustard, the apple vinegar and s&p… whisk. Now add the cooled apple juice and olive oil – making sure to keep mixing as you fold into the bowl. Done. Dress the salad – open a bottle of wine… invite your guests to the table.