Things you need to know:
- Oil rallies 25% as Trump works the phone lines to bring everyone to the table
- Stocks managed to eke out gains on the back of oil
- Today brings the latest NFP report – but don’t expect it to reveal the truth (yet)
- Eurozone PMI’s collapse
- Try the Mushroom/Asparagus Risotto
KENNY POLCARI, Editor
Chief Market Strategist, and Consultant
Circuit breaker limits today
Level 1 – S&P must fall 7% – 176.88 pts
Level 2 – S&P must fall 13% – 328.50 pts
Level 3 – S&P must fall 20% –505.38 pts.
WTI (West Texas Intermediate) Oil explodes higher – surging as much as 35% before taking a breath and ending the day up 25% or $5 (the sharpest percentage gain on record). Word was that Donny has succeeded in getting both the Saudis and the Russians to come to the table giving everyone hope that we might be seeing an end to this latest price war that has seen oil collapse – taking the broader market with it. Word of the first US energy industry bankruptcy (Whiting Petroleum) added to the urgency to get something done. As oil was surging – Vlad (Putin) denied any such meeting – causing oil to fall, but then the Saudis came to the podium and said that they would be willing to consider “substantial production cuts” IF the G-20 nations were willing to join in the fight and cut back on production as well. The sense being that the Saudis and the Russians should not be the only ones to curtail production – I mean – US producers have risen to the number one positon. So how come the US is not being asked to cut production as well? Many in the Middle-East want to know… Look the Saudis want a fair deal (and who doesn’t?) – so the pain has to be felt across the spectrum – and in the case of the US – we don’t have a single national producer – like the Saudis and the Russians. So that means that we have to get the individual US producers to agree to curtail their separate productions… capisce? And today’s meeting at the WH is going to address that head on… Stay tuned…
The expectation that something was going to happen has caused the energy industry and some of the top energy names to surge as well this week. The XLE (Energy ETF) has risen 12.5% this week and has risen 32% off the $20 lows last week – names like XOM which had fallen 60% since January have risen nicely as well – surging 32% in the last 8 trading days. CVX performing even better – falling as much as 54% since January but rallying 48% in the last eight days. Others in the group – COP, EOG, PSX and SLB are all adding to the excitement. Now – while this is a positive surprise – there still is NOT a deal, there is talk of a deal, but no deal yet, reminiscent of the ongoing trade war that saw the markets surge every time someone said “hello” and then collapse when they didn’t say “goodbye.” Recall how that conversation dominated the news and the action for more than 20 months. Will we see the same in this latest oil conversation? One day it’s yes and the next day they are telling each other to “stick it!”
So in all this excitement stocks managed to trade higher – this after a rocky day – that saw the market trade up on the opening, only to go negative by 9:45, surge higher by 10:38 (high of the day) only to lose it all and go negative by 2:20 pm only to surge into the bell as the oil story stole the headlines. All 11 sectors of the S&P managed to end the day in positive territory – with energy leading the rally! Healthcare up 2.3%, Tech up 2.7%, Consumer Staples up 2.56%, Utilities up 3.13%. Is this the canary in the coal mine? (defensive play?), Financials + 2.5% and the list goes on. Interesting that Consumer Discretionary was the worst performer – up only 0.37% – suggesting that the discretionary sector is just that discretionary – consumers don’t need to buy “discretionary” items when times get tough. By the end of the day – the Dow added 469 pts or 2.2%, the S&P was up 56 pts or 2.28%, the Nasdaq ahead by 126 pts or 1.7% and the Russell tacked on 13 pts or 1.3%.
The economic data – was pretty poor as expected. Initial Jobless claims surging well past the estimate of 3.5 million claims coming in at 6.6 million claims (and that makes 10 million new claims in just two weeks – go ahead do the math). Factory orders fell to 0% (exp of + 0.2%) while Factory Orders EX transportation fell 0.9%. Durable goods came in inline- but that is a reporting scheduling issue – expect to see next month’s report to be very different. Today brings us the monthly NFP report – one that is usually watched by everyone – but today’s will not really reflect what is happening. Again it’s because of the timing of the report. New jobs created is expected to be -100k while unemployment is still expected to be 3.8%, a number we all know is absolutely wrong. But according to the data that was submitted – it is what it is. The latest collapse in employment conveniently missing the cutoff for the report. By now – many economists have already told us that unemployment is approaching 7% if not 8% and that is expected to hit highs of 30% before this is over. But don’t expect to see that in today’s report – but next month – oh boy. But again we know this and the market will price it in before we actually see it in print. In addition, today will bring us the Markit Services PMI – and that is expected to be 38.5 – well below the magic number – 50 but not much lower than last month’s read of 39.1. Now this is important because the US economy is a service economy and this report speaks directly to the services part of our economy. Just to be clear – a number in the 30s is NOT good. But again we know this and the market has mostly discounted the bad news that is coming. Now there might be more downside – most likely is – but many could argue that the worst of the price decline (last month’s low of 2200) is already priced in. We are about to find out…
European stocks are off to a weak start. Eurozone business activity plunges to a record low. IHS Markit Composite PMI for the Eurozone imploded going from 51.6 to 29.7 – worse than the expected 31.4 – as the forced economic recession demanded by the virus continues to take hold and destroys economies around the globe. IHS Markit CEO Chris Williamson noting that “the data indicates that the Eurozone economy is already contracting at a rate approaching 10% – with worse to come.” Spain, Italy and France service sectors all recording their deepest recessions on record and Germany is laying off employees at a pace not seen in 23 years.
As of 6:30 am – FTSE -1.25%, CAC 40 -1.01%, DAX -0.44%, EUROSTOXX -0.73%, SPAIN -0.12% AND ITALY -1.3%.
US Futures are down this morning as we await today’s economic data. Dow futures down 272 pts, S&Ps are off by 30 pts, the Nasdaq is lower by 90 pts and the Russell is down 17 pts. Yesterday’s oil rally doing little to help the mood today. Don’t expect it to unless we hear good news out of the WH after today’s boondoggle between the President and the energy industry executives. Will they commit to cut production to work with the other producers around the world (Saudi and Russia) or won’t they? How will they allocate across the industry – who cuts what? So many questions to answer – but at some point – there needs to be an answer before this can be over. If not – expect the Saudis to ramp up production driving most of the other players into bankruptcy. And so – a new day dawns.
Gold which rallied strongly yesterday – rising $43/oz. to $1638 is off a bit today – currently down $6 as traders settle in. It feels like gold has found a range for now – $1600/$1650. A further collapse in the equity markets will surely force gold to come under pressure again as investors get faced with margin calls – like they did in late March when equities collapsed and gold and treasuries followed suit (which is an anomaly). When they do – gold and treasuries are always a source of cash to pay that bill. If equity markets hold tight right here – then the pressure is less and gold can advance – so stay tuned. More to come.
The S&P closed at 2526 – and continues to thrash around finding some level of stability… This morning’s action once again suggests that the S&P will breach 2500 and test lower… The gap from Monday still needs to be filled but that may not happen today. It feels like 2440 should be a level of support for the broader market. The range for now appears to be 2440/2550. The economic news today is not going to be the worst we get – so we can expect the market to test the March lows in the weeks ahead – as the economic data and the earnings data all hit the tape this month.
Take good care.
Kenneth Polcari
Chief Market Strategist, Consultant
kpolcari@slatestone.com
Risotto with Mushrooms and Asparagus…
You need a box of Arborio rice, chicken stock, asparagus, onion, butter, dried mix of porcini, oyster and cremini mushrooms (that you reconstitute), pepper and Parmegiana cheese.
Reconstitute the mushrooms in warm water for 30 mins.
Heat up chicken stock. You need about 6 cups.
Melt a stick of butter in a pan on med heat… now add diced Vidalia onions and sauté around.
In a separate pan – boil a handful of asparagus (ends trimmed) for 5 mins then bathe in a cold water bath. Trim the flower heads for use later. Now cut the stalks into bite size pieces and set aside.
Now add the rice….and mix well – browning the rice a bit so that it takes on a toasted like color – Once toasted – Slowly add in two ladles of stock and one ladle of mushroom water… stir around… allow the water to absorb… add a bit more and continue to stir. Now add in the sliced asparagus and the reconstituted mushrooms. Mix well – when the last ladle of stock is absorbed – add another and allow it to absorb. Taste the rice – is it ready? Or is it still crunchy? If crunchy then add more chicken stock and mushroom water… do not drown. Allow the water to be absorbed. Taste again… when the rice is done turn off the heat and add 3 handfuls of grated parmegiana cheese – mix well. Serve immediately. Have more cheese on the table for your guests…
Made this dish last night – day 15 of the lock down.
Buon Appetito.
