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Things you need to know:

  • Volatility continues as new infections appear in Beijing
  • 20 states report a rise in infections as testing increases
  • The US remains on course to re-open
  • Markets under pressure as the chaos continues
  • Try the Linguine and Clam Sauce

Stocks bounced and tried to recover from the beating they took on Thursday – some questioning whether this was a real bounce or a dead cat bounce – with the Dow regaining 830 points during the day before going negative and breaking the long term trendline that I had pointed out – only to regain the strength to attempt to rally again, closing 477 points higher to end the day at 25,605.

The S&P followed the same path – it too breaking the long term trendline before mustering up the energy to rally ending the day up 39 pts at 3041. Now this is key… because we talked about the importance of trendlines in terms of investor psyche and market action… at 1:38 on Friday – both the Dow and S&P breached their trendlines – if only for a min – rallied back above only to fail again at 1:44 pm… taking both indexes further into sub-trendline territory – a key into what might happen next. When that happened, I tweeted out that buyers beware – the breaching of this support line was a psychological move that might ignite the algos that respond to the technical break – and would look for a reason to push further… But as the afternoon wore on – all the news that had been driving the action appeared to have been settled – the fear of that second wave, the fear of a significant resurgence never really took root and by the end of the day all of the indexes gained back some of Thursday’s losses… with the Dow adding 477 pts, the S&P adding 39 pts, the Nasdaq ahead by 96 pts and the Russell adding 31pts.

It was Friday – it had been a long week, markets were exhausted, but in fact – many people had come to the realization that the markets had gone too far too fast and reconciled themselves to the fact that continued volatility was sure to come as the world and the US began the process of re-opening. Look – we are still in the very early days of trying to wake up, after an event that no one saw coming… after an event that brought the global economy to a complete standstill with no playbook to follow. The excitement that took the market up sharply since March and even sharper in the last month was in complete contrast to what the data was telling us – yet stocks marched higher as analysts groped for ways to explain it. Wednesday’s press conference suddenly putting all of it in better focus… Jay Powell coming out and telling us that the economy faced a long road back and that the labor market, which ‘officially is 13%’, but in reality is probably more like 16% unemployment would face even more hurdles and that sent the algos into a tailspin… taking stocks lower and souring the market’s feel-good mood.

The idea that all of the cheap money being unleashed across the economy, supported by all of the government programs all aimed at protecting Americans from this plague was enough to ignite the engines causing markets to surge.  Slowing virus cases and slowing deaths all contributed to the ‘we beat it’ mood. But was that premature? Were stocks well ahead of themselves? I would say yes, I did say yes, and guess what – the market is now telling you that stock prices had in fact climbed too far too fast – all led by the algorithms that now control the market. Now this doesn’t mean that the market is never going up again, it just means that stock prices had gotten well ahead of themselves… so something has to give, it’s either prices come back inline or economic activity surges… and it now appears that it will be the former vs. the latter.

Then the country gets hit with the social unrest that turned into global protests surrounding police brutality and the ugly truth about racism… and while this may not price stocks in the long run, it certainly plays into the short-term mindset causing the markets to remain unsettled. Every publicly traded company is now joining in the conversation as the movement takes root and real change appears to be on the horizon – and in the end – this will prove to be a pivotal point in the history of the nation and the world and many are now hopeful that a new reality over race and opportunity will help the nation recover physically, emotionally, spiritually, and economically. And don’t discount the coming presidential election and the role that this will play in the markets in the weeks ahead. Talk of a Democratic sweep putting pressure on tech, financials, healthcare, and energy as the far left is prepared to dismantle those industries in the name of ‘reform’ – think socialism… but that’s another story.

Next – the talk of a resurgence once again takes center stage as the country began to re-open. Small upticks in cases – which were expected – have turned into larger upticks in cases as the hours turned to days and days  turned to weeks and this is causing a new set of concerns…..but remember – I keep pointing this out – larger upticks in cases – is a direct result of more testing – so that makes sense – what is getting lost in the conversation is that while test results are showing increasing numbers of infected – death rates are NOT increasing which should be seen as a positive but is not at the moment because of the hysteria surrounding the uptick in cases.

Over the weekend, the anxiety continues to build, rising infection rates now being reported across a range of states… Oklahoma, Alaska, Alabama, Florida South Carolina, Arkansas, Nevada and Arizona. In addition, rates appear to be rising in Beijing (again) and this morning – Eunice Yoon – CNBC Asia reporter – reports that Chinese authorities are now concerned about transmission via fresh caught salmon being imported from Europe. Did it come from the salmon or was it transmitted at the dock? (initial thoughts are it got infected at the market in China). You can imagine that the Chinese are blaming the Europeans – so let’s see how this plays out today. And if the infection is in the salmon – that will cause a whole new set of concerns and conversations… but let’s not go there right now… the bet is that it got infected at the dock by human transmission. I’m sure we will hear more in the days ahead.

Monday trading saw Asian markets come under pressure as concerns rise over a second wave… and a district within Beijing goes into ‘wartime emergency mode’ after that cluster of infections was identified. Stay tuned… this is sure to become more of a story in the days ahead.  By the end of the day – Japan lost 3.5%, Hong Kong -2.1%, China -1.2% and ASX -2.2%.

European stocks are a bit lower – NOT falling nearly as much as the Asian stocks… but the story about a rise of infections in Beijing and the rise of infections in the US is causing those markets to back off as investors reevaluate the outlook. Buyers once again being patient as the selling heats up… As of 6:30 the FTSE -1.13%, CAC 40 -1.23%, DAX -1.3%, EUROSTOXX -1.49%, SPAIN -1.57% and ITALY -0.87%.

US futures are under pressure… Dow futures were down more than 1000 points overnight are now down by 655 pts, the S&P’s are down 65 pts, the Nasdaq lower by 177 pts and the Russell is lower by 40 pts. The losses being led by airlines, cruise ships and retailers as any surge in infections is causing sell algos to ignite… and as futures moved lower overnight – real buyers (not the trader types) remain patient and passive. There is no reason to chase stocks and all of those FOMO (Fear of Missing Out) buyers will now most certainly begin to bail, because they veered off the plan. They pulled back big in March, bailing out on stocks, only to miss most of the rally, which then caused them to jump in for fear of missing out causing the markets to surge. And you see what happens next… In fact, so much has been made of all the ‘Robinhood’ buyers and how those retail investors are driving the market will now be the same ones to bail as the market backs off. I mean, how many times can someone say – stick to the plan….if you are a long term investor… chaos creates opportunity and there will be more opportunity created today.

Eco data today includes Empire State Manufacturing – exp of -30, but that is up from -48 last month. Later in the week we will get retail sales, Industrial Production, Capacity Utilization, Building Permits, Housing Starts and Initial Jobless claims, to name just a few.

We will also hear from the BoJ (Bank of Japan), the BoE, (Bank of England) and Fed Chair Jay Powell again…as he delivers is semi-annual report to congress tomorrow and Wednesday. Expect the focus to remain on this appearance as traders/investors attempt to glean new information.

Oil is down 63 cents or 1.8% – of course it is… all the talk of a resurgence is reigniting the drop in demand story and that is causing oil to retreat. The latest data out of China and the US not helping the mood. But look – oil has surged substantially – so any negative talk of the virus is causing not only the oil markets to retreat a bit, but it’s also causing stocks to follow suit. Oil has now broken its trendline support at $36.25 and now appears to be in the $30/$36 range – a range I believe will hold as oil sets up to surge once all of this resurgence talk settles down.

S&P closed at 3041 as it attempted to remain above the trendline… but this morning’s volatility is set to cause the index to plunge down and thru into the last century mark – 2900. Intermediate support from here is 2944 and after that 2905… levels we could see fairly quickly if the hysteria gets out of control causing the algos to go into a frenzy. Remember – for every seller there is a buyer… so it’s not like the world is over at all. Like I said – chaos creates opportunity and if you concentrate on the good, solid, high quality businesses – you will ride the storm. Do not spend all your money in one day, but use the opportunity created to add to your portfolio. You’ve got some analysts calling for 2800 on the S&P – the path of clear resistance is lower – so patience remains a virtue.

Take good care

Kenneth Polcari
Chief Market Strategist, Consultant
kpolcari@slatestone.com

Linguine & White Clam Sauce

This white clam sauce has a twist. Try it – you’ll like it.

Start with the clams – a couple of dozen or so should do nicely (in the shell) – wash thoroughly to remove any sand from the shell.

Drain. In a saucepan – heat olive oil next add sliced and crushed garlic – sauté around until it takes on a nice golden hue… add clams, S&P, a splash or two of white wine and cover. Reduce heat to med… continue to move the clams around to get them to open up. If you need a more juice – feel free to add a bottle of clam juice. (Never use a clam that is open before you cook it… capisce?) At this time, remove some of the clams from the shell – return the clam itself to the sauce and discard shell – While keeping some in their shell for the presentation to come.

In a separate saucepan you want to make a roux – melt stick of butter, whisk in some flour and add whole milk. Whisk until it becomes nice and thickened – not real thick but thickened. The longer it sits, the more it will thicken… so you need to make this when the put the pasta in the pot to boil. If it thickens up too much, just add a bit more milk… (the trick is to go slow on the flour and give the roux time to come together).

Put the linguine in the pot of boiling salted water to cook for 8 / 10 mins… or until aldente. Strain – always reserving a mugful of water… return the pasta to the pot – add back 1/2 mug of water to re-moisten. Toss – wait a min or two and then add the roux and the clams and the clam sauce… re-toss and serve immediately in warmed bowls. You should have grated Romano cheese available on the table for your guests – although some Italians would cringe at the thought of putting cheese on a fish dish… but I gotta tell you – it is delicious!

Enjoy this dish with Sliced Italian garlic bread – recipe was included in a note from last week… and a glass of white wine. Nothing fruity… I always like a Pinot Grigio with this dish as I find it complements the sweet taste of the clams. This dish should take you no more than 40 mins… start to finish.

Buon Appetito.