As has been the case for nearly 2 months now, the weekly economic calendar that I outline in Kenny’s Commentary only acts as a data-driven backdrop to underscore the hopefully short-lived, but nonetheless historic, lockdown of our economic vitality. We receive our weekly and monthly data and try to place it in perspective but we all know that perspective is difficult to come by these days – days that have increasingly become reminiscent of an economic apocalypse for many.
That said, and as difficult as perspective is to come by, I sense that we are beginning to sense a possible shift in the coronavirus narrative, and the relentless onslaught of overwhelming negative data in matters both economic and epidemiologic. That shift may be the result of what has seemingly materialized as a tradeable bottom in equity markets – one that I suggested would materialize in Kenny’s Commentary, published two weeks ago on April 6:
“Additionally, though there are no guarantees here, I do think it safe to say the we should be nearing a meaningful degree of relative stabilization. My hope is that that stabilization allows for investors to re-engage markets from the long side.”
It may be the result of early indications that from China to Germany to the United States, there are efforts underway to restart respective domestic and collective global economic activity. Additionally, it could be the result of the gradually improving rate of COVID-19 related data from the rates of instances to fatalities to recoveries. Increasingly, models used to initially predict the likely path forward for the virus and its lethality appear to have overstated the case – and in some cases, massively.
It may simply be a shift in tone and attitude, precipitated by the fact that we have collectively moved from panic-stricken fear to the possibility that testing, in multiple forms, appears to be taking place in every corner of the country and that hundreds of millions of PPE and tens of thousands of ventilators have been distributed around the country. It may be that social distancing is proving effective in helping flatten the curve. In fact, New York Governor, Andrew Cuomo, is apparently oversubscribed in regards to ventilators. There are also apparently more hospital beds available in New York than the governor knows what to do with. Let’s face it, these are good problems.
There is no question that the herculean efforts unleashed by our legislators in the House and Senate, in conjunction with the coordinated efforts spearheaded and engineered by the White House, are having a significant and material impact on markets and investors’ phycology, even if data is yet to suggest we have turned any economic corner.
Whatever the reason or combination of reasons, it appears Americans are increasingly willing to look out, get out, and engage the future – whenever and whatever that looks like in a post-COVID-19 world. Equity markets increasingly appear to be telling us that.
We find ourselves in a confirmed uptrend after four weeks of trading higher off the intraday bottom reached on March 23. Where we go from here will depend on several factors – not the least of which are corporate Q1 results. Last week we received results from financials. Of particular interest were the money center banks and mega-cap financials. JP Morgan (JPM) and Wells Fargo (WFC) both reported results for Q1 that were well short of consensus. Bank of America’s (BAC) results, though also short of consensus, were significantly closer. Goldman Sachs (GS) and U.S. Bancorp (USB) both surprised to the upside. It was a mixed week for financials. In short, the sledding does not get any easier from here. Banks are increasing loan loss reserves, operating in a near-zero interest rate environment, and navigating a treacherous landscape dominated by COVID-19, social distancing, and a societal fabric that feels inextricably and permanently torn – or should I say ripped. Net/net, the mixed but sobering Q1 results posted by financials thus far this earnings season have not upended the trade higher that has resulted in a reversal of over 50% from our March 23rd lows.
On February 12th, the Dow Industrials reached an all-time intraday high of 29,568. Six short weeks later, on March 23rd, the Dow Industrials traded down to an intraday low of 18,213. On an intraday basis, from peak to trough, the loss for the Dow Industrials was a staggering 11,355 points or 38.40%. One of the sharpest, deepest corrections of its kind in history. On Friday, the Dow Industrials closed at 24,242 after trading up to 24,264 earlier in the session. In less than three full weeks, the Dow Industrials have managed to recover 6,029 points or 53.09% of the decline that preceded it – one of the sharpest reversals of its kind in history. Over that period of time, the CBOE Volatility Index (VIX) has fallen from 85.67 to 38.06 – clearly indicating that investors have become increasingly more acclimated to the new normal.
Though there are encouraging signs in the market place that suggest there may be more room to run on the upside in coming weeks, I suspect that we may well run into a degree of turbulence this week as markets look to digest the 50% reversal that has materialized in recent weeks. Investors will also need to calibrate a heavy Q1 earnings calendar this week coupled with no shortage of cautious guidance. Adding to a week that represents an ongoing shift to an entirely new normal, the US Treasury market will be very active as suggested below.
Note Bene: My sincerest thanks to those of you that read, share, and reply to Kenny’s Commentary. The conversations have been outstanding. The readership and shares have gone through the roof. It is such a privilege for me.
This week’s economic calendar highlights:
As mentioned earlier in the note, these economic data releases in a COVID-19 world are an aberration from historical trends. On Tuesday we receive the Existing Home Sales – Level – SAAR figures for March. Econoday consensus is 5.400 M versus February’s 5,770 M.
On Wednesday, we receive the EIA Petroleum Status Report for the week ending 4/17. The inventory builds have been unprecedented over the past month. Last week’s report reflected builds in crude oil inventories (19.2 M bbl), gasoline (4.9 M bbl) and distillates (6.3M bbl.). Even with a brokered global production deal, questions remain concerning what to do with the overcapacity that has flooded world energy markets – a trend that will not turn on a dime.
On Thursday, the PMI Composite Flash for April is released. Econoday consensus for the manufacturing vertical is 40. The services vertical is 35.0. New home sales for March are out on Thursday as well. Econoday consensus is 632K – down from February’s 765K.
Finally, on Friday we receive the Durable Goods Orders data for March. This is going to be gruesome. Econoday consensus for the New Orders vertical is -11.4% versus the previous reading of 1.2%. Ex-Transportation, -4.5%. Core Capital Goods, 05.0%. The University of Michigan’s Consumer Sentiment Survey is released on Friday. This will be very closely watched by the street given that consumers are historically the principal driver of economic activity. Econoday consensus is calling for a reading of 68.1 – down only modestly from the previous reading of 71.