Daily Markets: Can The Stock Market Hold On To Yesterday's Gigantic Gains? - Nasdaq

Today’s Big Picture

The big question today is: Can the stock market hold onto yesterday’s gains following the news Washington is inching closer to formally passing a $2 trillion coronavirus related stimulus?

The last time we saw two consecutive days of positive moves was February 12. The big move yesterday was driven by the hope that Congress would reach an agreement on a coronavirus stimulus program and shortly after midnight, they did on a $2 trillion spending plan. The US budget for 2020 anticipated spending $4.8 trillion, which brings us to around $6.8 trillion or roughly 32% of 2019 GDP.

Wow, the last time federal spending was at that level of GDP was during WWII when gross federal debt rose from 44% of GDP to 119%. Today that figure stands at 105.8%.

Following yesterday’s market surge, your authors suspected we could be setting up for a “buy the rumor, sell the news” event regarding the Washington stimulus and as we write today’s note that appears to be unfolding. Early this morning US futures pointed to yesterday’s rebound continuing today, however, around 7 AM ET US equity futures have turned negative.

In early morning trading, all the major European equity indices were in positive territory, up over 2%, but by 7 AM ET, when US equity futures turned negative, European indices rapidly slid into the red as well. A lot of head-scratching is going on this morning around the globe as we watch a synchronized reversal asking, "What the hell just happened?"

About forty minutes after writing the previous sentence, European indices shifted back into positive territory except for Germany's DAX.

Today is going to be an interesting one.

The synchronized about-face was rather spectacular to watch. We expect that markets are quickly moving past the stimulus passage news and are asking questions about how soon the funds will be disseminated and what effect it will have on the economy. Our view is that any stimulus package will likely have a limited impact until consumer spending is able to return to some semblance of normalcy -- it's hard to spend when locked away and when the future is so uncertain. Until then, we would not be surprised to see consumers use stimulus funds to cover non-discretionary expenses. If we're right, the pronounced rebound yesterday won't last but market volatility in the near-term likely will.

The major equity indices in Asia all closed in positive territory, Japan's Nikkei 225 rose 8.0%, South Korea's Kospi closed up 5.9% and Hong Kong's Hang Seng gained 3.4% while China's Shenzhen Composite rose 2.9%.

Data Download

The total number of confirmed coronavirus cases is just under 430,000 with the United States quickly catching up to Italy, adding over 11,000 new cases yesterday for a total of just under 55,000 as of this morning. People from Prince Albert of Monaco to Prince Charles of the UK to Tom Hanks and his wife Rita Wilson have been struck by the virus.

After experiencing the fastest decline in history over the past few weeks, yesterday was one of the best days in the history of the S&P 500 and was the best day since 2008 when stocks rose nearly 10%. The Dow rose 11.4%, the largest one-day gain since 1933 when the economy was still in the depths of the Great Depression. To put that gain in further context, the Dow hasn’t risen 11% in 12 of the past 20 calendar years.

Looking at the distribution of gains for the day, we see that those stocks that were most beaten up during the prior decline were the stocks that enjoyed the biggest gains - the "dash for trash" that often occurs in bear markets. The average stock in the bottom 10% of returns starting February 19 was up an average of 18.1% yesterday.

The energy sector was the strongest performing, gaining 16% while consumer staples were the weakest, up just 5.1% - "just 5.1%," that’s the reality of today’s markets. Historically these are not the kinds of moves we see when the market is bottoming. The VIX curve remains deeply inverted and has not materially changed from Tuesday’s close.

While the massive rally in equities yesterday helped high yield credit spreads declined by nearly 0.5%, Wednesday was the third session where high yield spreads were more than 10% above Treasuries. Yesterday was the biggest drop in high yield spreads when the S&P 500 has rallied over 5% since 1996. These markets are seriously wild.

A plethora of data came out this morning on the UK for February that was all roughly in line with expectations, some better, some worse. We'll skip the details as March is going to be a very different picture.

Germany's Ifo Business Climate indicators for March dropped to the lowest level since July 2009, the steepest monthly fall since German reunification thirty years ago.

Mortgage applications in the US fell 29.4% during the week ended March 20 after an 8.4% decline the prior week. This past week’s drop was the biggest since the week ended January 23, 2009. Refinance applications fell 33.8% and applications to purchase a home fell 14.6%. Later today we will get the durable goods report from the Census Bureau, with consensus looking for a 0.3% decline in February after January’s 0.2% drop. The Federal Housing Finance Agency releases January’s home price index.

January, remember back when life hadn’t turned utterly upside down?

We've now received three of the five regional Fed banks reports for manufacturing for March and the picture they paint is not pretty. The Composite Index for the three is in the bottom 7% of all periods. The outlook for shipments and new orders is at all-time lows. As we go through this data, it can feel like a daily gut punch. Someday this will be just a painful memory, but today, wow, it is ugly.

Stocks to Watch

Even as Amazon (AMZN) has reported a surge in demand erupting from the coronavirus,  workers at six warehouses have tested positive for the virus.

Consumer product company Church & Dwight (CHD) shared it's seeing a significant increase in consumer demand for many of its products in March and given the coronavirus and self-quarantining the products likely spurring that demand center around its Arm & Hammer, OxiClean, and Trojan product lines.

Apple (AAPL) iPhone suppliers Foxconn and Wistron suspended production in India due to lockdown order and Apple has extended its remote work policy through at least April 5. 

Intel (INTC) announced it has suspended its stock repurchase plan and that to date it has been able to keep its factories operational.

Chevron (CVX) announced yesterday that it will suspend its stock buybacks and reduce capital spending by $4 billion this year but will maintain its dividend which currently yields around 9.5%.

And the list of companies pulling or not providing guidance continues to swell. New additions to this growing list include:

• Square (SQ)
• At Home Group (HOME)
• Whirlpool (WHR)
• AAR Corp. (AIR)
• TTEC Holdings (TTEC)
• Synnex (SNX)
• Mid-America Apartment (MAA)
• Enersys (ENS)
• Hanger (HNGR)
• Everi (EVRI)
• Whitestone REIT (WSR)
• Helios Technologies (HLIO)
• Target (TGT)
• Pentair (PNR)
• Mednax (MD)
• Sally Beauty(SBH)

Among these additions, we’d note Target pulled the guidance it issued just three weeks ago, which showcases the evolving nature of the virus’ spread across the US and the grinding halt it is bringing with it. Target also announced it will delay plans to remodel hundreds of stores, open new ones and offer fresh groceries and beer to curbside pickup. The company plans to wrap up remodels already in progress but won’t start any new ones.

After reporting February quarter results that missed on the bottom line but topped revenue expectations for the quarter, Nike (NKE) declined to provide May quarter guidance. Beginning March 16, all Nike-owned stores, outside of Greater China, Japan and Korea were closed to help curb the spread of COVID-19. The company shared that following 5-6 weeks of coronavirus related containment, its data points to China, Japan and Korea in recovery and moving toward normalization with consumers spending coming back in those markets. Currently, nearly 80% of doors are open in Greater China with an even higher rate in key cities.

Sticking with athletic footwear and apparel, Under Armour (UAA) announced that Kevin Eskridge, Chief Product Officer, will be leaving the company on August 15.

Jack in the Box (JACK) became the latest fast-food restaurant company to announce the closure of its dining rooms system-wide.

Gartner (IT) announced its conferences scheduled beyond August are currently expected to proceed as planned.

After US equity markets close today, investors will be digesting quarterly earnings from HB Fuller (FUL), Micron (MU) and Shoe Carnival (SCVL). Readers looking to get the lowdown on those reports and others to be had this week should visit Nasdaq’s earnings calendar page.

On the Horizon

• • Upcoming IPOs:
  • Dates to mark:
    • • April 10: US equity markets closed for Good Friday
      • April 28-29: Federal Reserve FOMC meeting
      • April 30: European Central Bank rate decision
      • May 12-14: Google I/O Developer Conference
      • May 25: US stock market closed for Memorial Day

Thoughts for the Day

“The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.” ~ Bertrand Russell

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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