From last week’s Kenny’s Commentary…
“As volatile as U.S. equity markets were last week, it does appear on the chart above that the selloff that has dragged markets sharply lower over the past 6 weeks may pause this week.”
At the conclusion of last week’s note–the most widely distributed and read note on record for Kenny’s Commentary–I suggested that based on the price action we saw at the conclusion of the previous week, we would likely see a pause in the sharp dive in equity prices that had left investors breathless – and not in an uplifting way. Not only did the equity market selloff pause, equities dramatically reversed course.
Last week’s meteoric move higher by US equities was sponsored by investor expectations that a $2 trillion dollar stimulus would become law. It did on Friday with President Trump’s signature. The relief package, the largest stimulus bill in US history, will dump an unprecedented tsunami of cash into the US economy. Every sector of the economy and every business, no matter the size, will feel the therapeutic effect of this influx of cash. Combined with moves made by the U.S. Treasury to extend tax deadlines, the Federal Reserve to address tight credit conditions, and lower interest rates to virtually zero over the past month, clearly the powers across the Federal government infrastructure are leveraging the most aggressive fiscal and monetary policy posture in US history to stop this pandemic in its tracks. A few details of the stimulus package passed Friday afternoon:
$350 billion will be directed at small businesses
$150 billion will be directed at hospitals and health care providers
$1,200 direct payments will be made to middle class Americans
$500 billion for distressed companies
Extension of unemployment benefits in addition to increased cash stipends
In the most dramatic weekly stock market reversal of my lifetime, US equity markets added meaningful distance from their respective lows registered on Monday, March 23. From those intraday lows, the Dow Industrials have gained 24%. For the week, the Dow Industrials gained roughly 13%. The Nasdaq Composite gained 9% last week and the S&P 500 gained 10%. Odds are increasingly likely that we have a tradeable rally on our hands, though I do expect to see extremely elevated volatility and sessions defined by decidedly negative breadth in the days and weeks ahead.
That said, the Dow Industrials closed out last week 27% off their closing record high. The S&P 500 (-25%) and Nasdaq Composite (-24%) are similarly positioned. If markets can hold onto the bulk of last week’s gains, even if they don’t add to them this week in a meaningful way, we will increasingly see investors reach for risk. They won’t have to reach very far.
The Coronavirus COVID-19 pandemic that has brought the world to an economic standstill in recent months has laid bare some interesting human behaviors and perspectives that I am certain we have all witnessed in our own worlds. As you know, I spend a fare amount of time in Denver, Colorado. Like every other major metropolitan area in the country, Denver residents are facing significant restrictions to their daily lives, and for good reason. We are all trying to “Flatten The Curve.” Social distancing, washing hands, and the other recommended health precautions are universally understood and devoutly practiced.
Speaking strictly from an empirical and purely environmental stand point, I have been surprised by the number of people I have spoken with over the past 2 months here in Denver that see the lurching halt in economic activity as “not all bad” – again, from a purely environmental stand point. The city is deserted. No one is here. The air is noticeably cleaner. There are no sounds emanating from the streets; no horns, no brakes squealing… silence. There are fewer police sirens, fire truck sirens, and ambulances on the streets. Police officers stand at entrances of businesses, from the local organic grocers, to the occasional rail station. It is actually other worldly. The city parks, and the birds that reside in them, seem to be drawing folks out of their homes, apartments, and cars silently, like a magnet. All the while, the mountains, still shrouded in snow, loom large, clear, and clean over the landscape.
Geese silently and effortlessly glide by our balcony in formation as the sun sets behind those immense mountains painting the sky in vivid reds and pastel yellows and oranges.
A reminder… none of the data in the Economic Calendar actually matters at this point in time. That is due to the fact that every person paying attention to our weekly and monthly economic releases knows full well that the economy locked up over a month ago. The data is beginning to and will increasingly reflect that. In fact, it has already begun to, as we saw last week. I consistently go through a process of analyzing past and future economic data as a way of measuring the underpinning of both markets and the economy. In our COVID-19-centric world, the economic data found in the calendar has little actual relevance to recent trends or projections. We are in uncharted territory. That is evidenced by not only the data itself, but also by the extreme volatility that has driven markets to record records on both sides of the ledger. Last week we saw the best weekly performance for the Dow Industrials since 1933. The previous week we saw the worst weekly performance for the Dow Industrials since 1929. There is no precedent for what we are living through.
Last week’s economic calendar highlight:
Last week’s Jobless Claims results for the week ending 3/21 were stunning. So stunning in fact that they were the lynch pin around which the entire COVID-19 narrative was focused. You will remember that in last week’s note I suggested readers to take the “over” on the Econoday consensus call of 750k – 1,000k. Boy, was that an understatement. The actual was 3,283 K. That data release alone set the place for what to expect in coming weeks and months relative to the sheer magnitude of our economic crisis. There has never been anything like what we are seeing or will see in coming weeks and months.
This week’s economic calendar highlights:
The Pending Home Sales Index data for February is released on Monday morning. Econoday consensus is calling for a contraction of 1.6%. January’s reading was 5.2%. The Dallas Fed Mfg. Survey for March is also due out Monday morning. Though there is no consensus estimate for this release, February’s production Index reading was 16.4. The General Activity Index is expected to dip to -6.0.
On Tuesday we receive the Consumer Confidence reading for March from the Conference Board. Econoday consensus is 111.0. February’s reading was 130.7. The two highlights from Wednesday’s economic calendar releases: ISM Mfg. Index reading for March is 43.5; and the EIA Petroleum Status Report for the week ending 3/27 is due out. Last week’s data reflected relative equilibrium between supply and demand though prices across the entire crude oil matrix have collapsed.
Thursday’s highlights include International Trade data and Weekly Jobless Claims. Obviously, international trade data is expected to reflect a sharp drop in traffic. Like last week, the Weekly Jobless Claims numbers will reflect a sharp rise in claims. Last week’s results, for the previous week, were alarmingly large. Historic.
The focal point for the economic calendar this week is released on Friday morning: the March Employment Report. It will be hideous. Non-farm M/M change is expected to reflect a sharp contraction in the roles of the employed. From a stronger-than-expected February reading of 273K to -148k. The unemployment rate is expected to jump to 3.9% from 3.5%.
The economic data doesn’t lie, and this week’s will be particularly stunning. There will not be a single data point to find refuge behind. Expect the economic narrative this week to provide a headwind to the stimulus spending induced trade higher that provided for the best one week performance for US equity markets since 1933.
Flickr photo: Robert Towell
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