Start Your Engines

Start your engines.  Stocks surged yesterday as traders were encouraged by new potential vaccine candidates and the slow, but sure reopening of Main Street.  The iconic floor of the New York Stock Exchange reopened yesterday after being shuttered for the past 8 weeks.

N O T E W O R T H Y

Vaccinomics 101.  Eager to get back to normal?  Of course you are.  Though normal may not look exactly the way we remember it, some version of it will come, hopefully sooner rather than later. Just a few weeks ago, only the few boldest amongst us would brave the streets and wait on long lines (wearing face masks, of course) to get into a grocery store only to find the butcher case empty along with bare shelves in the baking and cleaning products aisles (thankfully the junk food aisle was well stocked and there were plenty of over-ripened avocados).  Many were taking the not-going-out-until-we-have-a-vaccine approach, which seemed reasonable given the rapidly rising number of death’s attributed to the virus.  Since then a few things have changed.  First, a reality check.  Credible industry professionals made it clear that, although results of early vaccine trials were promising, general availability was still far down the road, like the end of the year (a real timeline).  Second, there has actually been some progress in the quest for therapies with no fewer than a dozen candidates in various stages of testing.  Third, some hard-hit areas of the country have experienced a slowdown in new cases and deaths, allowing governors to slowly ease lockdowns.  Fourth, people are getting stir-crazy - tired of taking pictures of their pets for recreation.  All of these factors have gone into softening the hardline approach that was so prevalent just a few weeks back. It started with the stock market. The numbers from the economy and corporate earnings are far from good (that is a nice way of saying: ugly).  Despite this, stocks have managed to rally with the S&P closing yesterday +33.7% higher than its post-pandemic low (though it is still around -11% off its high of the year).  It appears that traders are betting that either there will not be a second outbreak wave or that a vaccine will come online in time to quash it.  Further, though the economic numbers are bad, an adjustment of one’s angle would show that many of them appear to be improving.  In other words, the worst may be behind us. Individuals are beginning to change their approaches as well, hoping to avoid a second wave in time for a vaccine.  Fear has given way to cautious optimism.  The, streets, once desolate, are now beginning to fill up once again, which serves to bolster confidence.  There it is… one of my favorite indicators.  Yesterday, the Conference Board Announced that their Consumer Confidence Index was at 86.6, up from last month’s revised 85.7 but slightly lower than expectations.  The survey showed that views on the current situation have worsened slightly but expectations about the future have gotten more favorable.  Another interesting data point came from the Census Bureau which announced that New Home Sales increased by +0.6% compared to the prior month’s revised -13.7% drop. Economists were expecting another deep decline.  All of these appear to confirm the hopes of traders that the worst is behind us, business will improve as shelter restrictions ease, and that a second wave, if there is one, will be stopped with a vaccine. Looking at yesterday’s market action confirms that traders are acting on those hopes.  The top ten S&P500 winners included United Airlines (+16.3%), Norwegian Cruise Lines (+15.32), Royal Caribbean Cruises (+14.88), American Airlines (+14.85%), Delta Airlines (+13.05), Alaska Airlines (+12.93%), and Southwest Airlines (+2.64%).  Losers included lockdown favorites Take-Two Interactive (-7.34%), Newmont Corp (-6.09%), Activision Blizzard (-4.21%), Netflix (-3.39%), and Domino’s Pizza (-3.21%).  While it is clear that at this stage some of those moves are speculative, it is also clear that attitudes are changing and confidence is growing.  Stay safe.

THE MARKETS

Stocks surged yesterday as investor confidence climbed with lockdown restrictions easing along with at least two companies announcing encouraging vaccine advances.  The S&P500 climbed by +1.23%, the Dow Jones Industrial Average traded up by +2.17%, the Russell 2000 jumped by +2.77%, and the Nasdaq Composite Index advanced by +0.17%.  Bonds slipped and 10-year treasury yields climbed by +4 basis points to 0.69%.  Crude oil continued its climb, adding +3.31% on hopes of increase demand and less supply, while gold fell by -1.23%.

NXT UP

- Richmond Fed Manufacturing Index (May) is expected to come in at -40, slightly better than April’s read of -53.

- The Fed will release its Beige Book which details economic conditions across the Fed districts and is used by the central bankers to make their policy decisions.

- Crude Oil Inventories (May 22) are expected to show an additional draw down in -1.262 million barrels compared to last week’s 4.982 million barrel decline.

- St. Louis Fed’s James Bullard and Atlanta Fed President Raphael Bostic will both speak today.

- After today’s closing bell we will get earnings releases from Ralph Lauren, Toll Brothers, and HP.

daily chartbook 2020-05-27