Things you need to know:
- Oil rallies 10% as Trump works the phone lines to bring everyone to the table
- Stocks “bounce” off of yesterday’s sell off
- Trump considers banning interstate travel between “hot zones”
- Economic data today is being widely watched as we brace for tomorrow’s NFP report
- Try the Orrechiette with Sweet Sausage and Peas
KENNY POLCARI, Editor
Chief Market Strategist, and Consultant
Circuit breaker limits today
Level 1 – S&P must fall 7% – 180.92 pts
Level 2 – S&P must fall 13% – 325.99 pts
Level 3 – S&P must fall 20% –516.92 pts.
Crash, Bang Boom! Large and mid-cap stocks got clobbered yesterday while the small caps (think Russell) got absolutely creamed and it didn’t feel like there was any relief in sight. The Dow was careening out of control falling further as the clock counted down to the end of the day – chalking up losses of 973 pts or 4.48%, while the S&P gave up 113 pts or 4.43% pts the Nasdaq falling 339 pts or 4.42% and the Russell losing a whopping 81 pts or 7.06%! Every sector under fire – as the first day of the second quarter spelled disaster. Safe haven assets – Treasuries, gold and other precious metals all rallying as investors ran for cover. 10-year Treasury yields falling to 0.63%, down from 0.691% as prices rose. Gold rallied $6.80 yesterday and is up another $10.70/oz. at $1602. $1600 is trend line support and it appears as if that where gold wants to settle… for now. Any good news will put pressure back on gold (and treasuries) while more negative news will cause those assets to rally.
An update from the President suggesting that infections and deaths will be greater than originally thought and NY’s Governor Cuomo detailing what seems like every case only adding to the angst. US intelligence confirming that China UNDERREPORTED infections and deaths and kept this whole virus under wraps for much longer than originally suspected adding to the anger of investors. (Overnight China vigorously denied the report saying that they have been completely transparent). The sense is that had China come forward earlier than they did, had they reached out for help, had they been honest with the world about what was happening – then the disaster we are seeing today around the world may not have been the disaster it is turning out to be. (But that’s another story…). Infections and outbreaks across Europe and now the US are way outside of “China’s bell curve” so something doesn’t add up.
That is a moot point now. Because we are where we are and we have to deal with it. The weakness in stocks are direct result of the sobering assessment being given by health care officials, government officials, and the media. News that Italy has extended its lockdown until April 13th, and estimates of another 30 days passing by before NY sees its peak – taking us into the end of April only adding to the frustration. Florida now in the bullseye of who’s next on the east coast, with cities across the country bracing for their turn. So what was being considered a late winter/early spring event is now a late winter/mid-summer event before this is potentially over. That will take us thru two more earnings seasons (6 months). The first one to start next week and the second one to start in early July. What was thought to be one quarters worth of disruption has now turned to two quarters worth of disruption which only means that earnings estimates, GDP, macro data points, etc. will get hit even harder than originally thought.
Oil which continued to get whacked, is only adding to the story of weakness and angst. Whiting Petroleum being the first casualty of this latest downturn. Yesterday – they filed for bankruptcy and are expected to be the first of many to come. Trump attempted to help stop the bleed using all diplomatic avenues to help bring the Saudis and the Russians to the table. In addition, he has invited many industry executives to the WH on Friday to discuss how the government can help this ravaged industry. Overnight news that Putin is hinting at cooperating and news that the Saudis reiterated their support for production cuts has helped – once again –to try and stabilize oil prices. Currently WTI is up 10% this morning or $2.05/ barrel at $22.38. $20/barrel does seem to be support so moves higher from here will be good. But oil has to go to the mid $/low $40’s -at least – to stem the tide of bankruptcies that are sure to come.
Overnight US futures were initially weaker but turned positive and have rallied into this morning. Currently Dow futures are up 383 pts, the S&Ps are up 42 pts, the Nasdaq is up 95 pts and the Russell is ahead by 15 pts. The 10% rally in oil is helping the mood for sure. The move up in stocks appearing to be more of a “bounce” off of yesterday’s move lower. There is no new positive news about the virus to account for this move – so do not expect it to last very long. News that companies in Europe are halting dividend payments and news that companies here in the US are considering slashing dividends adding to the uncertainty. More states order “shelter in place” and Trump considers halting travel between “hot zones” cannot be considered positive announcements. Overnight the US confirms that we have now passed 200k virus cases (not deaths) – on our way to what some quantify as 1 million plus.
Today’s economic data will give us the second week of explosive Initial Jobless Claims and it is not gonna be positive. Recall that last week we saw a stunning 3.5 million new claims – and expectations for today suggest another 3.7 million claims with some whisper numbers in the 5 million range. Unemployment which is a lagging indicator is expected to show a 3.7% rate tomorrow when economists are telling us that it is most likely already 7%. (The difference is because of the reporting schedule – tomorrow’s report doesn’t include the most recent claims data – but it’s coming, so get ready.) Continuing claims will climb to nearly 5 million. Factory orders are expected to be +0.2% while Durable Goods Orders are expected to be +1.2%. If these reports fail to meet the expectations – it will be easy to dismiss so I would not expect the market to react to that. But anything can happen.
European markets are also “bouncing” after the beating they took yesterday as well. Again – the focus remains solidly on Corona and the devastation it is creating. Nothing else seeming to matter at the moment. Yes – the rally in oil will certainly be part of the conversation but there is still way too much speculation swirling around what is really happening to be definitive (right now).
FTSE +0.79%, CAC 40 +0.92%, DAX +0.41%, EUROSTOXX +0.53%, SPAIN +0.09% AND ITALY +1.18%. Italy appearing to rally harder as word is that the worst is over for them and we are beginning to see a turn in cases and deaths.
The S&P closed at 2470 down 114 pts bringing us back into the 2200/2500 range that we discussed. This morning’s surge will take us back to 2500 as the market attempts to stabilize. Yesterday’s lower opening did create a bit of a gap between Friday’s close and Monday’s open and we may see investors attempt to close that gap before the next leg down. Now the next leg down does not have to be a disaster – but as I have been saying – it feels like we do need to test lower first before we can make any real progress higher. My sense is that a test of 2300 is probably most likely in the days ahead. Remember – we are about to get hit with all kinds of new monthly economic data. Next week we will start to get the parade of earnings (and guidance – maybe). Now with the expectation that this crisis will extend into the summer, the guidance will be more difficult to express and that will leave even more uncertainty which will lead to a push lower in a ‘shoot first/ask questions later’ mentality. Either way – talk to your advisor and make sure that you are prepared to take advantage of the continued sale going on – because this too shall pass and the markets will rebound.
Take good care.
Kenneth Polcari
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Orrechiette w/Sweet Sausage and Peas
This is just one of my favorite meals…it is easy to make and so good for you.
For this you need: 1 lb. of pasta (Orrechiette), Sweet sausage meat (out of the casing), 1 large white onion, garlic, frozen peas, dry white wine, chicken broth and plenty of fresh grated parmigiana cheese.
Bring a pot of salted water to a rolling boil.
Begin by browning the sausage meat in a large pot with a bit of olive oil – Once browned – remove and set aside. In the same pot – Add some more olive oil add in sliced garlic – maybe 2 cloves, and the sliced onion. Saute on med heat for 10 – 12 mins… until the onions get soft and translucent. Add back the sausage meat and mix well. Next – add in 1 cup of the dry white wine – and bring it to a boil – allowing the alcohol to burn off, 3 – 4 mins. Now add enough chicken stock to bathe the sausage meat – do not drown it. Add the frozen peas – season with s&p.
Next – add the pasta to the water and cook for 8 mins or so – until aldente. Strain – always reserving a mugful of the pasta water. Add the pasta directly into the large pot with the sausage and peas – toss in a handful or two of fresh grated parmigiana and mix well. If it appears to suck up all the juice – add back some of the pasta water to re-moisten. Serve immediately in warmed bowls always having extra cheese on the table for your guests. Serve with a cooled (not chilled) red wine – nothing heavy – a nice Chianti works well with this dish. Or you can always just finish the bottle of white!
Buon Appetito.
