Push Me Pull You

Push me pull you.  Stocks closed lower yesterday, giving up early gains, as investors could not shake off bad economic data. Earnings continue to throw mixed signals, in some cases giving investors hope.

N O T E W O R T H Y

Looking the other way.  I have been writing a lot about investor optimism.  One can’t help but notice that despite mounting job losses, bad economic data, an increasing number of companies completely withdrawing guidance, and the ever mounting toll of casualties from the pandemic, stocks feel as if they are in a good place.  “A good place?” you ask.  Well, despite the S&P500 being down -11.37% year to date, the index is hovering around +28% above its recent lows.  The VIX volatility index is in the low 30’s down from the lofty 70’s and 80’s it hit last month. The forward PE ratio of the index, which is based on expected 12-month earnings is now 21.16, indicating that stocks are relatively expensive when compared to historical averages. What is up with that?  Seems like investors are optimistic about the future prospects for companies. Earlier in the week I highlighted last week’s University of Michigan Sentiment and yesterday we received a confirmation in the more closely watched Consumer Confidence Index offered by the Conference Board.  The number came in at 86.9 which was slightly lower than expectations, but down significantly from March’s revised 118.8.  The result ultimately derailed the morning rally in stocks, contributing to yesterday's lower close.  Looking more closely at the index we can see that the biggest hit to the index came from respondents’ views of the current situation. That number came in at 76.4 down from 166.7 in the prior month… wow, but not surprising. What is somewhat surprising is the respondents’ expectations about the future.  That number came in at 93.8, up from last month’s revised 86.8.  The Conference Board defines the future as the next 6 months, so respondents are increasingly believing that things will improve in the next two quarters.  That is optimism, which is really good. Hopefully that will translate into consumption which is the main component of GDP.  Today, we will get a data point for GDP when the Bureau of Economic Analysis releases its advanced Q1 GDP growth figure.  Bear in mind that the number is backward looking and only partially reflects the de facto lockdown of the country which started late in the quarter. Economists are estimating that GDP contracted by -4.0%, down from last quarter’s 2.1% annualized growth.  This would mark the metric’s first negative reading since 1Q14, after which GDP growth spiked up and has been positive ever since.  To provide some perspective, the same number hit -8.4% in December 2008 just as the Great Recession was ending.  Many economists believe that the biggest downward spike in growth will occur in the current quarter and we won’t get that number until the summer.  Still, it seems clear that consumers are confident that things will improve between now and the fall. I can’t say it enough, confident consumers are good for the economy… and the stock market.

THE MARKETS

Stocks slipped yesterday after fading from earlier gains.  A weak Consumer Confidence number and ongoing confusion with crude oil were the drivers of the selling. The S&P500 traded off by - 0.52%, the Dow Jones Industrial Average slipped by -0.13%, the Russell 2000 advanced by +1.26%, and the NASDAQ Composite Index pulled back by -1.40%.  Bonds traded up and 10-year treasury yields climbed by +1 basis point to 0.61%.  Crude oil slipped by another -3.44% to $12.34 / barrel.

NXT UP

- GDP Annualized Quarterly Growth (1Q) is expected to have contracted by -4.0% compared to last quarters +2.1 annualized growth.

- Personal Consumption (1Q) may have fallen by -3.6 compared to a +1.8% growth in the prior quarter.

- Pending Home Sales (March) are expected to have fallen by -13.6% compared to last month’s +2.4% expansion.

- The FOMC will announce its policy decision this afternoon at 2:00 PM EST.  Rate policy is expected to remain the same but the press conference which starts at 2:30 PM EDT will be very closely observed.  Analysts are hoping that the Chairman will offer economic guidance and even more importantly some insight into the length of the Fed’s bond buying programs.  Further, many are interested to learn of how many more tools the Fed might have to continue the support of the financial markets. Questions of hotly contested negative rates are sure to come up as well.

- This morning Anthem, Blue Apron, Valero Energy, Laboratory Corp, Sherwin-Williams, American Tower, and Humana beat estimates while Hasbro, GE, Northrop Grumman, Yum! Brands, and General Dynamics missed. Boeing is expected to announce before the open and after the bell we will hear from Microsoft, eBay, Facebook, United Rentals, Annaly Capital Management, Antero Midstream, QUALCOMM, Archer-Daniels-Midland, Tesla, and Vertex Pharmaceuticals.

daily chartbook 2020-04-29