Things you need to know:

• It’s a new quarter – global markets begin re-pricing once again
• Earnings season is only 2 weeks away – analysts continue to slash estimates
• Global macro data begins to show stress – Algos go into sell mode
• US futures plunge as the new quarter begins
• Try the Spring Minestrone

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.

The quarter end window dressing rally that began on March 23rd – and took the S&P up nearly 20% off the lows of 2191, ended yesterday as the final bell rang, closing the doors on the first quarter of 2020 – that saw the worst performance since 1987. In what will be remembered as a stunning blow in the history books, the Dow – ended the day down 1.8% bringing the total 1st quarter performance to negative 23%. The S&P, Nasdaq and Russell not faring much better – ending the day down 1.6%, 0.95% and 0.45% and the quarter down 20%, 14% and 31% respectively. Now this is complete contrast to the first 5 weeks of the year when all of the indexes were making new highs – in what seemed like an almost daily occurrence. It couldn’t get any better – the rally of 2019 that saw the markets advance better than 30%, kept on going into the new year – as the economy was firing on all cylinders leaving even some street analysts at a loss to explain.

As the year began, the indexes were well ahead of themselves – and well ahead of all the trend lines – yet they wouldn’t back off, they wouldn’t come back to the average. Daily moves of up another 1% seemed to be the new norm as we struggled to find an explanation. We were now more than a decade into this rally with no end in sight. Good US macro data continued to hit the tape while the rest of the world continued to struggle – Asian markets, European markets and the European Union attempting to pull themselves out of the lingering great financial crisis of 2007 – 2015 that left interest rates in negative territory never mind relatively high unemployment, slowing manufacturing, near zero inflation and sub-par GDP.

Last summer – the US 2s and 10s inverted for all of 10 minutes and that caused so many analysts to warn of a coming recession – a recession that was 16 – 19 months away – a call that so many rejected (and rightly so). But that 10-minute inversion suggesting a recession would come in the spring of 2020 somehow came true – BUT not because of that ridiculous inversion – but because of a virus that was born and spread across the world before anyone acknowledged it. What began in China – soon spread across the region and then thanks to trains, planes, boats and automobiles – spread across the globe – and before we knew it – the world came to a “full stop” and the global economy was thrust into a manufactured recession as governments around the world brought whole countries to a standstill forcing a recession that is yet to be defined but one that is sure to be sharp and deep – one that is wreaking havoc in every nation on Earth.

By now you know that the manufactured recession has caused global markets to collapse, orders to shelter in place, to close all non-essential businesses at the root of the cause. The speed at which the collapse happened is still stunning global investors – as central banks came to the rescue – flooding the markets with untold sums of money, slashing rates to zero (or more negative) and launching stimulus programs that make the Great Financial Crisis look like a field day. It has been tough and it has been difficult on so many levels. But let’s move on…

Today begins the 2nd quarter of 2020 – and the markets get to put the last quarter behind us. We are starting from a suspect place – have we seen the lows yet or not? How soon before we once again test the March 23rd low of 2191? (a 15% move lower from here) as we now look forward to what’s next.  China (if you believe them) is on the mend – considering they suffered in January and February, people are back to work, companies have re-opened their doors and whole cities are coming to life again. Even the macro data is boomeranging back (if you believe what they tell us) – this morning they told us that the private Caixin/Markit Manufacturing PMI for March was 50.1 – beating the 45.5 estimate.

Europe is in the thick of it – every country across the continent still under lockdown as the virus lingers. The macro data continuing to get crushed as they enter the second month of quarantine – with no end in sight – well there is – but it is difficult to see.

Lockdowns, Shelter in Place, House Arrest – all became part of the daily conversation as the world attempts to stop the spread of the virus – new infections are diagnosed every day sending the count skyrocketing while deaths mount as well. What started in China spread to Europe and has brought Italy and Spain to their knees – while sending the other countries into lockdown. As the days turn to weeks – the virus made its way across the Atlantic and is now making NYC its home base in the US as we get ready for 4 weeks of pandemonium.

NYC as noted is now the epi-center here in the states – but that is sure to change by month end – expect it to move to Chicago, or Texas or Kansas and then somewhere in CA. Los Angeles? San Francisco? Maybe San Diego, as the whole country goes into hiding. Our friends at GS – now calling for a 15% unemployment rate and a 34% decline in GDP for the second quarter and then a massive turnaround to take us into year-end, as the country roars back to life. But until then – we have to navigate the road ahead and that road is full of pot holes this morning.

Overnight US futures continued to weaken, while global markets plunge. This – I pointed out would be the story as the end of the first quarter gives way to the beginning of the next – leaving investors to re-price stocks yet again. The concern is building in this country with Trump now telling us that the next two weeks are going to be very painful – suggesting that we could see north of 200k deaths – with NYC leading the charge -charting minute by minute updates detailing new infections and new deaths. Street analysts continue to slash estimates on every macro data point as well as every earnings estimate on every individual company – as we prepare for the coming “beauty pageant” that begins anew in two weeks. Companies struggling to assess forward guidance is making it tough to come up with a valuation for the broader market so we can expect a rise in volatility as analysts and strategists struggle to find the bottom. So the best advice is to speak to your advisor – make sure you have a plan and then stick to it – because this too shall pass and next year we will look back at it and wonder why we didn’t see it.

As noted – Dow futures are getting slammed – at 5:15 am – they are down 641 pts or 2.9%, the S&Ps giving up 76 pts or 2.9%, the Nasdaq is off 201 pts or 2.6% and the Russell giving up 58 pts or 5%. Asian and European markets also under fire, as talk of “Rona” continues to dominate the story. Yesterday I said:

“I’m not convinced yet that there isn’t further weakness ahead. Yesterday’s Dallas Feds Survey plummeted to -70. Major retailers announcing furloughs – Macy’s, the Gap, (think Banana Republic and Old Navy), Rent the Runway and L Brands are just a few. Economic data later this week will add to the story – ADP employment figures due out tomorrow suggest 150k job LOSSES while Friday’s NFP (Non-Farm Payroll) report is expected to show a loss of 100k jobs. Both numbers I think are underestimating what the actual numbers will be. Thursday’s Initial Jobless Claims are expected to show an increase of another 3.5 million job losses while Continuing Claims surges to 4.8 million jobs. The data is just hitting the US – the numbers will be shocking – expect Washington to begin discussing the ‘next’ round of support for the US economy.”

And so it goes, in addition to ADP employment, todays economic data also includes – Mortgage Apps +15.3%, Markit US Manufacturing PMI – the estimate is calling for 48 but the whisper number is lower, the estimate for ISM manufacturing is 44.5 but many now expect a number in the 30s. Construction Spending month/month was expected to show +0.6%. But that is sure to be wrong. Yesterday – Cleveland FED President Loretta Mester told us to expect more pain. So strap in – those horrific numbers that we have feared are about to hit the tape and when they do. Expect the algos to once again go into sell mode.

This morning – major EU banks announced a cancellation of dividends and buybacks in an effort to support the economy sending the banking sector down 5% while the broader markets are all off better than 3%.

FTSE -3.86%, CAC 40 -3.89%, DAX -3.12%, EUROSTOXX -3.34%, SPAIN -2.13% AND ITALY -1.75%.

The S&P closed at 2584 – still well ahead of the 2300/2500 range I have been talking about. But that is about to change. Pre-market trading suggesting that when the market opens it will have a 24 handle on it, not finding support until closer to 2450. Again – it’s a new quarter – and with earnings about to begin and macro data about to signal disaster, another swift move lower is in the cards. Today is April 1st – when the billing cycle begins again. We are about to see how the rescue plan will work. Rent and mortgage forbearance is all the talk as payments are due…

Gold is trading higher this morning as the level of angst increases. This morning gold is trading at $1609/oz., up $10.

Oil is down 1% or 26 cents at $20.26/barrel. US stock piles increased by 10.5 million barrels as the catfight between the Saudi’s and the Russians widens and the US-Saudi alliance gets pushed to the back burner.

Take good care

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

Spring Minestrone

For this you need: Zucchini, carrots, onion, celery, potatoes, green beans, plum tomatoes, baby spinach leaves, olive oil, s&p, broth – (Chicken, beef or vegetable – whichever you prefer), Arborio rice – (or ditalini pasta), fresh basil and fresh grated parmegiana cheese.

So this is a great dish – easy to make, not heavy, gluten free, always helpful when you are trying to diet. – Fills you up without feeling stuffed.

Begin by heating up some olive oil in a large pot – add the sliced carrots, celery, onion – sauté for 5 mins or so. Now add the beans – cut into bite size pieces, and potatoes –also diced into bite size pieces.  Allow to cook for another 3 mins or so.

Now take the plum tomatoes – cut in half and take the core (seeds) out. Dice into bite size pieces also – add to the pot. Now add the broth – add enough that you have covered everything in the pot by about an inch or so. Season with s&p – cover and reduce heat to simmer. Allow to cook for an hour. Keep your eyes on it. Add more broth if needed.

Now – Bring another pot of salted water to a rolling boil and add the ditalini. if you are using pasta – only use about half a box of ditalini – any more will suck up the soup. (You can always add more broth or even water if it sucks it up.) Add the pasta and cook for 6 mins or so…

Add the spinach to the soup and stir. Once the pasta has cooked for 6 mins – using a slotted spoon – add the pasta to the soup – saving the pasta water as you may need a ladle or two.

Remove from heat – add the chopped basil, taste for seasoning and let it cool a bit.

Serve in bowls with a drizzle of olive oil and fresh grated cheese. If the pasta sucks up the soup – feel free to add a ladle or two of the pasta water to keep it soupy.

Buon Appetito.