Things you need to know:

• Stocks march higher, virus cases march higher as well…
• It is earnings week – expectations call for a 45% drop in earnings – but it’s the bottom
• Tuesday starts the banks… but today we get PEP – and they BEAT! (Wow!)
• Try the Grilled Pork Chop w/Sweet Vinegar Peppers

Stocks ended the week by shrugging off any worries about the coronavirus and the economic damage it has done… even as the media reported surging cases across more than 30 states just as we enter the second quarter beauty pageant – otherwise known as earnings season – and IT IS all about earnings season… As the 4 pm bell rang – signaling the all clear sign for the weekend – the Dow added 370 pts or 1.4%, the S&P tacked on 32 pts or 1.05%, the Nasdaq rallied by 69 pts or 0.66% and the Russell rose 23 pts or 1.7% – leaving all of the indexes up for two weeks in a row.

It seems that while investors/traders and algos do appear to be somewhat concerned about covid19 – they are not concerned enough (at this point) to really cause a broader Risk Off mentality for any sustained length of time. I mean it feels like this virus isn’t going away anytime soon and that – ultimately – you just have to accept the reality of what it has done and what it is doing… to our way of life, the way we live and the way we work, vacation, socialize, etc. And while there are some significant strides in terms of new therapies/treatments and hopefully vaccines – the truth is that this may never go away… it may just be like the annual flu virus that comes back year after year after year… We may succeed in treating it – but it may never actually go away… no matter how much we quarantine, or socially distance.

I mean just look at what happened over the weekend – cases continue to surge and Florida alone had some 15,000 new cases on Saturday and by the sounds of it – if they could have tested more people the number would continue to go up… there are now more than 25 states that are beginning to see significant rises in cases and remember – they are counting positive antibody test results as new cases!!! How does that make sense? It doesn’t – but if you want to document it – then those cases need to go under recovered not current – No?  Therefore, the total number of cases will go up, but so will the total number of recovered cases – so current cases should go down, not up, unless of course you don’t count it that way… and deaths? Deaths are not rising at nearly the same pace as diagnosed cases… in fact, they are only rising at a fraction of the rate of new cases… and that is a positive. And that is also why I think we are seeing this disconnect between the virus and investor sentiment. At this point – if we just assume the whole country has been exposed then we could move on… I mean you can chip away at it – day by day or you can just make a blanket assessment.

Clearly – money is being put to work – and if you listen to the range of opinions out there – the bulk of the analysts continue to be bullish on the economic recovery… at the same time – they are all talking of a disastrous earnings quarter but they also acknowledge that this should be the bottom and the future looks a bit brighter from here.

Now while Tuesday officially starts the earnings season with JPM – the first Dow stock to report – today will bring us PEP earnings… the street is expecting $1.25/sh and they reported $1.32 – and while PEP is not a Dow stock it is significant enough that investors will be paying attention to what they say… it’s not really about the number per se – because – the quarter is over and estimates have been slashed already… and as usual we are expecting between 72% – 80% of reports to ‘beat the number’ – if that really means anything… but what is even more important this time around is what guidance they offer… we already know that earnings are expected to fall by 45%, but we know this and this quarter is expected to be the bottom and we know that some 40% of S&P 500 companies have said that they can’t offer any guidance going forward because the outlook is still too cloudy… it’s a ‘best efforts’ basis – so investors will decide with their dollars.

There is no economic data today to speak of – but later in the week we will get the CPI (consumer price index) exp of +0.5%, ex food and energy of +0.1%.  Wednesday brings us Capacity Utilization of 67.7% (we’ve got lots of room to go before we start worrying about inflationary pressures) and Industrial Prod – exp of +4.3%.

US futures are UP! Dow futures are +220 pts, S&P’s are up 23 pts, the Nasdaq continues to march ahead by 93 pts and the Russell is up 17 pts. Investors/traders and algos are brushing aside any talk of increasing virus cases….even as analysts keep reminding us that Covid19 remains a ‘huge problem’ … The indexes are coming off two weeks of consecutive gains… Nasdaq putting in 3 weeks of gains… so the story remains conflicted… should investors be holding back or should it be stay the course? I say – stay the course, talk to your advisor, add some defensive names, prune names that have become overweighted and re-allocate those monies into new opportunities. Remember – investing is dynamic, not static… and so much of what comes next will be revealed in the next 3 weeks… so stay tuned.

Overnight – stocks in Asia rose and stocks in Europe have begun the week in positive territory…

Chinese stocks once again on a tear… rising 2% even after President Trump warned us that the US/China relationship has been ‘severely damaged’ by the corona pandemic. He then went on to say that US citizens should exercise extreme caution in China – due to a ‘heightened risk of arbitrary detention.’ Neither of which is causing Asian investors to give up on China… as it appears that investors are becoming more immune to both the virus and the relationship… Even the WHO (World Health Org) reiterating the extent of the virus is doing little to stall investor interest… and by the end of the day – Japan +2.2%, Hong Kong +0.17% and ASX +0.98%.

European stocks are up in early trade… it’s the same story… investors preparing for earnings while they push the virus concerns to the back burner. There is no eco data this morning – so the focus is squarely on earnings. By mid-morning – the FTSE +0.9%, CAC 40 + 0.6%, DAX + 0.9%, EUROSTOXX + 0.8%, SPAIN + 0.67% and ITALY + 0.07%.

Tomorrow brings us the banks – JPM exp of $1.05/sh, C exp of 38 cts/sh, and WFC – 7cts/sh… later in the week we will hear from BK, GS, PNC, USB to name a few more. Much of the action will be driven by what they say and how they say it. The group – represented by the XLF – is down 23% on the year and is sitting right at both the 50 and 100 dma’s… the next move will be key… If the group can stay above $23.16 then I think it goes onto to test longer term resistance at $26.45… if it fails, then a test of the May low of $20 would be in order. My gut tells me it holds and pushes higher… Let’s see…

Oil is off 64 cts… at $39.91… breaking $40 overnight… but still well within the $35/$45 range that we have been discussing. OPEC is due to have a meeting on Tuesday and Wednesday and the expectation is that they are considering easing up on the latest supply cuts that have helped to keep prices up… as demand returns… but as demand returns – then increasing US production will certainly play a role the direction of oil prices in the next couple of weeks… I think the market is well positioned for this… demand is coming back so it makes sense that supply should gradually increase. Stay the course.

On Friday – I said that the S&P is struggling with 3200 as we await the beginning of earnings season… which starts on Tuesday… and while everyone expects another disastrous season… most analysts have already written it off – and instead are turning the conversation to 2021… The S&P closed at 3185 up 33 pts on Friday… as it continues to churn in the very tight range of 3120/3200… Now if futures remain up this morning – then we should hit 3200 before the bell finishes ringing… and while the market may want to test the May highs of 3230 I’m not sure that will happen just yet… We have to get a look at what earnings feel like… And we will do that starting tomorrow… in the event of a real pullback look for trendline support at 3025 (that’s a 5% move lower from here) – certainly not out of the question by any stretch.

Take good care

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

Grilled Pork Chops w/Sweet Vinegar Peppers 

This is an easy dish and not one that you might think of readily… but make it easy on yourself… for this you will need only 4 things really. You need center cut bone-in thick pork chops, olive oil, sweet vinegar peppers (you can use hot if you prefer), s&p and chopped scallions.

Preheat the grill.

Rub the chops with olive oil, salt and pepper – just enough to massage the chops and prepare them for the grill. Place chops on grill and sear for about 3 mins then turn over and continue cooking for another 4 or so mins on reduced heat. Do not burn them.

While the chops are cooking – open the jar of sweet vinegar peppers, slice in half and sauté quickly with some of the juice in a sauté pan – really just to warm them up – you are not “cooking them”.

Now remove the chops from the grill – place on a warmed plate. Top with the sweet vinegar peppers.  Serve a lg salad – maybe mixed – romaine, some spinach, Boston bib, sliced red onions, and tomatoes. Dress with a simple balsamic vinaigrette.

Buon Appetito