Resting Eyes

Resting eyes.  Stocks could not hold on to early gains, selling off into the close and snapping a three-day winning streak.  It was a day of mixed data and news, maybe a bit too much to process.

N O T E W O R T H Y

Too hot to handle.  Stocks felt as if they were in suspended animation yesterday after posting three days of solid gains.  The prior days’ rallies were a result of restriction-easing optimism which came on the heels of an epic single day meltdown that was caused by fears that the restriction easing would cause a second wave outbreak.  Euphoria-pain-euphoria seems to be the new normal in the stock markets. It is hard to tell if the market is even processing a whole host of other forces which would typically move markets… in normal times. But… wait for it… these are (clearly) not normal times.  It could also be that there is just too much to process all at once… though that is doubtful.  Summer is officially just two days away but warming temperatures tend to capture traders’ attention (especially after being cooped up in home offices for so many months), and we have had some of that too.  So where do we stand, really?  Stocks are expensive by historical standards. Using PE multiples as a guide, stocks are richer on average than they have been over the past decade.  The current PE of the S&P500 is higher than it was at the close last year with forward multiples higher still.  Bonds are also expensive.  The Fed has essentially nailed down shorter maturity yields and is pretty clear that they will remain low for some time in the future.  Longer maturity yields are being held down as a result of furious buying by not only the public but also the Fed.  A 10-year treasury note will yield you 0.70% which, I am sure I don’t have to tell you, is low.  Well, at least you are beating inflation… for now.  Prices have contracted significantly since the pandemic but many economists expect it to surge as the economy recovers. Typically, longer maturity yields reflect that by rising, but stimulus is keeping that from occurring. The economic numbers are not good but show hints of a slight turn around.  Many estimates have the US GDP contracting by -5% for 2020 which, under normal circumstances, would be considered horrible.  Millions of American workers have been losing their jobs every week but now there seems to be less and less millions of losses each week, which I suppose is promising. Pain, just less of it… is the new pleasure. The lockdowns continue to ease and consumers are shopping again but still not spending enough, though something is better than nothing. New daily virus cases appear to be on the rise in 21 states, but experts are not concerned of a feared second wave just yet. Beijing had a 150 person outbreak which it says has been contained, but the market didn’t like that yesterday.  Still, some encouraging progress is being made in the race for the cure, which is probably why the rise in cases appears to be OK for traders.  News that appears to be unread?  The Justice Department is reportedly looking to roll back legal protections currently enjoyed by companies like Facebook, Twitter, and Google.  It is election season and a bombshell book by a former Trump cabinet member makes some sizzling admissions and the Justice Department is seeking to block its release.  They certainly are busy at DOJ.  More importantly, the victors in the next election will have a markable impact on the market and in normal times, those impacts would start to be handicapped by the markets at this point.  Finally, the current stimulus package, the CARES Act, is getting a bit old with much of its aid to out-of-work Americans ending soon.  A new act to bring fresh funds to the economy is being wrangled on in the halls of the Capital and not making much progress.  That among all the others, will have an impact on the markets… once traders decide to focus on it. Hopefully something will pass soon.  So where do we stand? Probably in the same place as a few weeks back but hopefully a few weeks closer to a cure… and a recovery.

THE MARKETS

Stocks hovered around the break-even level yesterday, at one point showing promise of gains but they ultimately sold off into the close.  The reason for the late session selling was most likely the Beijing outbreak and rising numbers of new virus cases in the US.  Housing data released in the morning missed expectations but still pointed to a turnaround, which is good.  Monthly mortgage applications have risen to the highest level in 10 years, likely spurred by record-low rates.  The S&P500 slipped by -0.36%, the Dow Jones Industrial Average dropped by -0.65%, the Russell 2000 sold off by -1.77%, and the Nasdaq Composite Index advanced by +0.15%.  Bonds climbed and 10-year treasury yields slipped by -2 basis points to 0.73%.

NXT UP

- Philadelphia Fed Business Outlook (June)  may have eased from -43.1 to -21.4.

- Initial Jobless Claims (June 13) are expected to come in at 1.290 million compared to last week’s 1.542 million.

- Continuing Claims (June 6) are expected to be 19.85 million, slightly better than last week’s 20.929 million claims.

- The Conference Board’s Leading Index (May) might show an increase of +2.4% compared to the prior months decline of -4.4%.

- Today’s Fed speakers include Mester, Bullard, and Daly.

- This morning Kroger beat estimates and we will hear from Smith & Wesson and At Home Group after the bell.

daily chartbook 2020-06-18