Thursday, March 26, 2020

The Morning Call---I don't think the decline is over

The Morning Call


The Market

The Averages  (21200, 2475) see sawed through the day, ending to the upside, though little changed technically speaking.  Momentum remains undeterred to the downside with almost no visible support until ~ 15399/1810. 

I still think the evidence points at the current up move being a rally in a bear market versus a bounce off of a bottom: (1) stocks remain oversold, though clearly less so than on Monday, (2) the VIX is not reflecting a reduction in risk adverseness among investors; indeed, the VIX was actually up yesterday [the second time in as many days], (3) both indices experienced gap up opens on Tuesday [which need to be filled] and (4) some of the most powerful rallies occur during bear markets. 

TLT, GLD and UUP continued their volatility, yesterday to the downside, suggesting a rejection of their role as a safety.  Nonetheless, their charts remained technically strong



            Wednesday in the charts.



            Yesterday’s data was mixed.  Weekly mortgage and purchase applications declined---reflecting the effects of the coronavirus.  However, February durable goods orders were better than anticipated, though ex transportation, they were worse.

            Overseas, the stats were also mixed.  February UK CPI and core CPI were above expectations while retail sales were in line; the March German business climate index came in below estimates.

            Other headlines:
(1)   it appears that the $2 trillion stimulus package will be enacted, though there was a last minute hitch late yesterday afternoon.

            ***overnight, bill passes senate.

            More details on the $2 trillion stimulus package.

            Clarity on the buyback ban.
            $5 trillion down the drain.

(2)   we are starting to get some decent analysis on the progress of the coronavirus and the economic impact of the disease/political reaction.

            ***overnight update.

            The unintended consequences of an economic shutdown.
            If you really want to be depressed.

            Coronavirus overreaction.

            More data.

            Still more data.

            Thoughts on data analysis.

Is Italy over the hump?

(3)   in yesterday’s Morning Call, I opined that in light of the Fed’s QEInfinity on steroids, my concerns about problems in the corporate credit market as well as those associated with the dollar funding shortage were likely to be somewhat mitigated.  Others disagree.

            ***overnight, Powell does interview on NBC.

                Fed buying everything in sight.

            Japanese QE on verge of failing.

So is US QE.

            There are still problems in the corporate credit market.

            A solution for our unpayable corporate debt.

            Bottom line. each day that passes, we get a better feel for the progress of the infection/death rate of the coronavirus.  Not that we have a clear picture of how to properly react.  But the more information we have, the more likely the right protocols can be discerned to balance medical health with economic health.  The major question is, will the ruling class make the right decision or demagogue the issue for their own benefit.  Regrettably, I don’t have the answer.

            Insolvency in the corporate debt and dollar denominated foreign debt market remains a huge risk to the financial markets.  Until there is more clarity on this problem, downside risks remain to the securities markets.

            The Market won’t return to January 2020 levels anytime soon.

    News on Stocks in Our Portfolios
Paychex (NASDAQ:PAYX): Q3 Non-GAAP EPS of $0.97 beats by $0.03; GAAP EPS of $0.98 beats by $0.02.
Revenue of $1.14B (+6.5% Y/Y) in-line.

FactSet Research Systems (NYSE:FDS): Q2 Non-GAAP EPS of $2.55 beats by $0.06; GAAP EPS of $2.30 beats by $0.04.
Revenue of $369.78M (+4.2% Y/Y) in-line.


   This Week’s Data


            Weekly jobless claims rose to 3.3 million versus expectations of 1.0 million.

            The February trade deficit was $58.9 billion versus consensus of $68.9 billion.

            February wholesale inventories declined 0.5% versus projection of 0.0%.

            The final Q4 GDP growth estimate was 2.1%, in line.


            February UK retail sales fell 0.3% versus estimates of +0.2%; ex fuel, they were -0.5% versus -0.2%.

            April German consumer confidence came in at 2.7 versus forecasts of 7.1


            Saudi Arabia’s radical new oil strategy.

            China to resume US LPG imports.

What I am reading today


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