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Things you need to know:

  • China votes to impose new security laws on Hong Kong
  • Protests increase – yet global markets not reacting yet
  • US calls China out and is prepared to issue a response by tomorrow
  • Markets pierce ‘technical trendlines’ adding to the excitement
  • Try the Pork Chops

And the march continues….both the march higher in stocks and the ‘March of the Volunteers’ as China turned up the heat and approved the proposal to impose a new national security law over  Hong Kong – effectively taking away HK’s independence – causing a swift reaction by the US and continued protests on the streets of HK.  Secretary of State Mikey Pompeo declaring that HK no longer had a ‘high degree of autonomy’ from Beijing – raising all kinds of questions about the state of trade between the US and HK – a development that most likely will raise the heat even higher as the US and China enter a new phase in their relationship – a relationship defined by the worldwide Covid19 virus and the increasing tensions caused by the push for global influence and control.  And now a relationship that will be further defined by the action that the US takes in response to China’s ‘takeover’ of HK.  And this will be important in the days ahead…..

And the march higher in stocks being fueled by the ‘technical’ signals happening to all of the indexes – supported by the idea that the worst is over for the US and Europe and that a return to normal is on the horizon – but the market is suggesting that the return to normal will be a return to what was pre-corona – vs. what some are telling us it will be post-corona.  And while we can continue to debate that point – look at what has been happening to the indexes as that debate goes on.

The Nasdaq – has surged higher – piercing its intermediate and long term trendlines weeks ago – sending all kinds of signals to investors and algos that ‘technically’ the market had recovered from the collapse seen in March – and once those trendlines were pierced the scramble to own anything tech surged.  The Nasdaq pierced 2 of the 3 trendlines on April 15th – as both the short and intermediate (50 & 100 dma’s) were converging at the time – causing the algos to ramp it up and start getting even more aggressive with the tech names – causing the index to challenge and pierce the 3rd trendline (200 dma) only 10 trading days later – a glance at the chart will reveal what happened next.  The Nasdaq surged another 9% in the days that followed taking it from ytd negative to ytd positive causing all kinds of excitement in the markets.

Now what was holding us back just a bit was the fact that the S&P, Dow Industrials, Dow Transports and the Russell were lagging and that was sending a conflicting message –  Was the Nasdaq acting out (essentially stamping their feet) or was the Nasdaq leading us out – a clear distinction.  The debate raged on as we watched and waited to see what was next.  In the days that followed – the other 3 indexes fought to join the Nasdaq and with all of the better news hitting the tape – the markets cautiously moved forward – taking 2 steps forward and 1 step back.

As we have witnessed European countries and US states that are waking up have not seen a significant resurgence in infections or deaths and we learned of more and more bio-techs and large pharma firms in a race to find a cure – or vaccine.  In the last month alone – we can count the good news – whether its from Regeneron, Moderna, Inovio, Gilead, Novavax, Merck or JNJ – the news is being perceived as positive – even though with each announcement we get someone else in the medical community to challenge the story – causing the markets to ‘jerk’ around – raising the volatility and the perception that its all good.

That was – until Monday – when Novavax announced their planned ‘trial’ of their vaccine – yes I said ‘planned’ and ‘trial’ – suggesting nothing definitive but did suggest that one of these firms is closer than not of finding either a treatment or better yet a vaccine.  And the S&P which was attempting to challenge those technical trendlines – suddenly shot up and through both its intermediate and long term trendlines at 3000 – sending the technical signal that the markets were in recovery mode…and you’ve seen what has happened since….the Dow industrials have pierced its intermediate term trendline – getting ready to challenge its long term trendline, the Dow Transports and the Russell doing the same – sending the broader message that we have room to run before this is over.

And yesterday was no different – as the Dow added another 553 pts – piercing 25,000 while the S&P struggled with 3000 for most of the day before adding 44 pts to close well into the new century mark (technically a positive signal), the Nasdaq adding 72 pts and the Russell adding 43 pts or more than 3.1% as the US centric names rally hard.

The under-performers – taking the lead in this latest move forward – Financials (XLF) up 4%, Energy (XLE) up 1.5%, Industrials (XLI) +3.4%, Retailers (XRT) + 3.4%, Travel and Leisure stocks +1.8% all showing new signs of life….. all staging a fairly strong comeback – helping to erase the massive losses they suffered.

This morning the story continues – with Asian stocks in the plus column with the exception of HK, European markets all higher and US futures suggesting a possible day of digestion  as the early action is mixed…..Dow futures up 86 pts, the S&P’s down 1 pt, the Nasdaq down 56 pts and the Russell up 2 pts.

News of the China trade is important and will surely  rage on about what to do with this latest move to take control of Hong Kong.  But the broader focus is on the optimism being generated by what appears to be a successful start to getting the country back on track…..All the talk about how all those people gathered at the Lake of Ozarks over the weekend – in groups, hugging, laughing, bbq’ing with no face masks, no nothing causing the left to stand up and scream about the lack of concern to the rest of the nation – has shown no signs of anything….no spike in cases, no spike in deaths, no spike in anything….And in Florida and other states that have re-opened the same appears to be true – although there are more people wearing masks – yet the spread is not happening the way many expected and is not causing renewed widespread panic.   And this should be perceived as a positive (and it is by the markets).

European markets are all higher even as the US/China, China/Hong Kong disputes rage on..and while investors there are keeping an eye on the latest developments – they are still in a Risk On mode as buyers remain a bit more aggressive.  Investors want to focus on a return to life as we knew it – they want to go out, they want to travel, they want to make reservations and have dinner with friends, they want to go shopping and they want to exercise…..and they want to go to school again…..and so – while the China news is a bit disturbing – investors are not focusing on the longer term possible implications that this implies.   European investors are also reacting to the latest move by the EC yesterday – a plan to spend $826 billion to fight back from the economic destruction created by the forced shutdown of the global economy.  As of 7 am – the FTSE is +0.67%, CAC 40+0.80%, DAX +0.44%, EUROSTOXX +0.58%, SPAIN -0.18% and ITALY +1.36%.

And as noted above – US futures are mixed as a new day dawns…..It would not be a surprise if the markets did nothing today or even backed off a bit after the 1000 point surge in the Dow and 100 point surge in the S&P  in two days……

Eco data today includes:  Durable goods – exp of -19%, Capital Goods ordered and Capital Goods shipped expected to be down 10% and 12% respectively.  The 1st revision to 1qtr GDP and the expectation remains at -4.8% – no surprise there.  Initial Jobless Claims  – exp of another 2.1 mil people hitting the unemployment roles and Continuing Claims to surge to 25.68 million people.  (the 13k people that Boeing is throwing out are not yet counted)…..Pending Home Sales -17% m/m and – 28% y/y.  Finally the Kansas City Fed Survey is expected to down 22, but that would be up from last month’s -30.

Oil ……is off 1.2% at $32.42.  Industry data showing an unexpected build up in crude stockpiles – so traders are using that news as a reason to take some money off the table after the recent surge.  The story goes that the increase in stockpiles suggests that demand is waning- come on!  Again demand is not waning at all – in fact, my bet is that we will see demand rise in the weeks ahead as the world opens up and spring turns to summer.   Remember – summer causes renewed demand  causing the price to surge.  OPEC is meeting again in June and they are expected to maintain their production cuts to control supply and control the price – We remain in the $30/$39 range for now and as we move higher I suspect oil will find resistance at $39 but then it will push up and through to find  equilibrium in the $39/$45 range at the height of summer.

The S&P closed at 3036 – right on the highs of the day.   and this is a bit interesting because the resistance that I have been talking about is 3000… the idea that we broke up and through and then closed above that level speaks volumes about technical market action.  3000 is a century mark, it is where the trendlines converge – and while the news of late is exciting it is  NOT definitive.  This morning the markets are taking a look at all of it and will react accordingly.  Look – while it is exciting – the truth is that the damage done to the global economy is real and the results of the shutdown are not fully recognized, never mind the damage done to the economies with all the money being thrown at it.  The question is:  How will we escape from it?  Should we expect that a massive spike in inflation?  Stagflation? Deflation?   – Remain focused and honest about what’s next.

Take good care.

Kenneth Polcari
Chief Market Strategist, Consultant

Grilled Pork Chops in Dijon Marinade

Grilled Pork Chops in a Dijon Sauce – Summer time – grill time….so try this one on for size. This is easy to marinate and grill and presents beautifully –

For this you will need:  Dijon mustard, brown sugar, apple juice, Worcestershire sauce, and bone in pork chops….

Marinade – Mix  1/2 cup each of apple juice and Worcestershire sauce with 1 cup each  of Dijon mustard and brown sugar…. Mix well and add chops… the whole thing in a zip lock bag and refrigerate overnight.

Next day – remove from fridge and let come up to room temp…..light the grill and heat to high.  Now add the chops and sear – turn heat to med and allow to cook for 5 – 6 mins (depends on thickness) and then flip over and repeat…..(you can dip the chop back in the marinade when you flip it).

When cooked – remove and cover in tin foil and let rest for 3 mins or so…..Present this meal on a plate with garlic mashed potatoes and  corn on the cob (which you have boiled in a pot of water enhanced with  butter and whole milk).  Have a large mixed summer salad with red onions, tomatoes, cucumbers, ceci beans, and even blanched French cut green beans.  Dress with a red wine vinaigrette and you are done.

Buon Appetito.