Circuit breaker limits today

• Level 1 – S&P must fall 7% – 201.75 pts
• Level 2 – S&P must fall 13% – 374.69 pts
• Level 3 – S&P must fall 20% –576.45 pts.

Stocks rallied hard in the morning rising 1000 pts, before giving it all back by 11:15 and then falling an additional 160 pts – (an 1160 pt from swing from high to low) in a typical ‘Dead Cat Bounce’ move. It only to rallied again as word was leaked by the WH that Donny was about to propose a 0% payroll tax rate through year end. This caused the algos to go hog wild again – taking the markets up to the highs of the day, leaving the Dow ahead by 1,167 pts or +4.8% – taking back 55% of Monday’s losses. The S&P rose by 135 pts or 4.9%, the Nasdaq gained 394 pts or 4.9% and the Russell rose 37 pts or 2.85%. This was a classic “relief rally,” a rally defined as a respite from the selling that resulted in a short term oversold condi- tion (which is also known as a Dead Cat Bounce).

So you think it’s all over? Think Again.

US futures are off again this morning (as that relief rally failed to hold- not surprising) – currently Dow fu- tures are off by 625 pts, the S&P is off by 73 pts, the Nasdaq is down by 165 pts and the Russell is off by 27 pts. The markets recognize that “it ain’t over til the fat lady sings.” And she isn’t singing yet. This morn- ing – the culprit?

So here is the question: What really changed between Monday and Tuesday? Answer: Nothing!

I mean the coronavirus only got worse, Italy (the whole country) in complete lockdown, US cases now top 1000. NYC Mayor DiBlasio telling residents that the cases in NYC are skyrocketing (why should that be a surprise), so much so that he can’t keep count – as of 5 pm that count was 36. He is also telling residents to stay out of the subways. (Have you ever been to NY?), Governor Cuomo bringing in the National Guard to circle the wagons in New Rochelle, NY – as that is now being identified as “ground zero” for the NYS- tate outbreak. Both Joey and Bernie are cancelling rallies as concerns rise over “the virus” rise and what is even more important is the ongoing oil price war between the Saudis and the Russians that in fact “triggered” this latest mess. That did not get any better – No one came to the table to say – “let’s chat about this to find a solution.”

So why the rally? It was just that – a relief rally driven by what was perceived as a substantial oversold condition. And while it might be oversold – there has been quite a bit of internal damage done to the mar- ket. And so – it will continue to thrash around – surging, then falling only to surge again as it tries to find its “chi,” which is funny actually because “CHI” is the Chinese word for life force and spirituality (and China is where this whole thing began). It’s a way to define stability and peace in your life – and right now – there isn’t much “chi” anywhere in the markets (or in the world).

The only other thing going on was another set of primaries taking place around the country (Michigan, Washington, Missouri, Mississippi, Idaho and North Dakota) and the word seemed to be that Joey will continue to hammer Bernie. And the market DOES like that, because thoughts of a Sanders presidency would cause the market to tank again. So any increase in Biden’s odds over Bernie will be met with “joy” by the markets. In fact – he did just that. Word overnight of Biden’s wins – causing the Sanders campaign to wonder – what’s next? With the Biden momentum building he is taking over the Democratic party and that will be perceived as a better option – but will it be a better option for the markets? That then leaves the next obvious question. What would the market prefer come November? Trump or Biden? Well, we can begin to discuss that now that it becomes clear that Biden has the momentum to become the Demo- cratic candidate. My guess is that the market would not be all that excited about a Biden Presidency. It wouldn’t be a disaster, but it wouldn’t be a smashing success. It would be a non-event.

Overnight – Asian markets continue to thrash around, as the virus continues to disrupt life as we know it. Australia is now in bear market territory even after the government commits $1.5 billion to the fight. South Korea another loser as concerns mount there.

By the end of the day – we saw Japan -2.27%, Hong Kong – 0.63%, China -1.33%, South Korea -2.7% and ASX – losing 3.6%.

European markets are in rally mode (for now), after the announcement that the BoE was cutting rates and announcing even more stimulus. That appears to be helping those markets in the short term. But remem- ber – all of this money will not cure this virus. So is this rally for real? Most likely not. Just sayin’. It is what it is.

At the moment – FTSE +0.85%, CAC 40 +1.75%, DAX + 1.68%, EUROSTOXX +1.9%, SPAIN 1.49% and ITALY +1%.

As noted, US futures were down and heading lower, as the market wants more clarity – something that it is not getting to get at the moment and most likely will not get right now. The Virus continues to spread, the Saudis and the Russians are not talking – oil is lower again this morning. The ECB becomes alarmist, the US is about to report spikes in diagnoses (because more people are being tested – not because suddenly more people are infected) – and we are only just beginning to get macro data that is expected to weaken. The March data will now begin to take in results from February – when this really all began – and the mar- kets are pricing in weakness – but it is enough? Well – stay tuned…

Oil is off again today, as that market continues to thrash around after Monday’s huge break. That – like equities – needs to find stability and until we get more clarity on what’s next with OPEC and Russia. We can’t define proper pricing for oil, and oil in the low $30s is not good for the US or US High-Yield debt. That presents a whole set of new problems for the markets. Currently – oil is down $1.09 at $33.29, as it tries to find support.

The S&P closed at 2882 – rising 135 pts. This morning – it is looking to lose 75 pts as the sun rises over the Atlantic. There are all kinds of predictions from many reputable analysts – in the end – no one can re- ally predict what it will be – the only thing investors can do – is build a stable well balanced portfolio that will weather the storm. This is not the time try and pick “the winner.” It’s a time to hunker down and ride out the storm.

Economic data today includes CPI for February expectations of 0% and 0.2% ex food and energy. Year- over-Year expectations of 2.2%, all in line with prior months. But honestly – no matter what – the markets need time to regroup. Patience is a virtue.

Take good care.

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