Bumpy Ride

Bumpy ride.  Stocks bounced all over the place yesterday, closing mixed, amidst all sorts of good and bad news about the state of the economy.  New virus cases continue to rise in some states as others prepare to lift restrictions while vaccine developers remain positive.

N O T E W O R T H Y

Turning the corner… slowwwwly.  Things are changing.  Here in the Northeast as I get my work under way at the crack of dawn, the chirping of the birds is punctuated by the occasional sound from a distant highway, which appeared eerily abandoned just weeks ago. Looking up at the skies, one can spy some airplanes flying overhead.  The lines at my local grocery store… getting longer while shoppers’ patience seems to be getting shorter.  Other than the masks, you might not know that we are still in the midst of a pandemic or a catastrophic economic calamity.  Sorry to burst the bubble, but we are.  But wait, before you close this note and move it into the trash, I have some encouraging news.  Even the grim numbers suggest that we may have turned the corner.  In other words the worst may be behind us.  Though they are very cautious with their wording, even Fed officials are beginning to think that April was our low point. However they are quick to point out that there is still plenty of uncertainty ahead and the road to complete economic recovery will be a long one.  Perhaps their cautious optimism comes from recent economic numbers. Yesterday, the Department of Labor reported that 1.508 million Americans filed for unemployment insurance for the first time.  The number was larger than expected but still lower than the prior week’s revised 1.566 million.  An even more important figure from the same release is Continuing Claims which also shrank nominally from 20.606 million to 20.544 million.  Both of those numbers have been getting smaller in recent weeks but they are still large and the pace of their decent may be slowing.  If you are an optimist that data can be encouraging.  Yesterday, the Philadelphia Fed released its Outlook Survey of General Conditions which beat expectations and came in at 27.5 compared to last month’s decline of -43.1.  The increase was driven by turn-arounds in current new orders and new shipments in addition to expected future (next six months) increases in new orders, shipments, number of employees, and average employee workweeks.  The reversal really does indicate that conditions are improving significantly in the region.  Finally, the Conference Board released its Leading Economic Index which beat expectations by growing at +2.4% compared to the prior month’s -6.1% decline.  The index typically turns around prior to the larger economy which is why it is so closely watched.  None of these numbers would have been considered great prior to the pandemic, however any signs of green shoots these days offers a nod to the optimists.  Markets have recently been in the optimist camp but a little less so yesterday. Perhaps traders are seeing the increases in new virus cases popping up in states like Florida, Arizona, Texas, Nevada, and California just as initial epicenters New York / New Jersey prepare to transition into stage 2 reopening. A virus outbreak in China also may be giving traders a bit of uneasiness.  Or maybe, as I asserted in yesterday’s note, traders are thinking about summer which officially begins tomorrow… or perhaps those long lines at the grocery store.  We have become accustomed to instant gratification  and this virus has certainly reminded us that patience is still a virtue.  We have learned to accept the fact that shipments from Amazon that were once same-day delivery may now take… two days.  We should certainly apply that same patience to the state of the world’s largest economy.

THE MARKETS

Stocks closed mixed yesterday on slightly positive economic news though there were some worrisome virus numbers out of a number recently reopened states.  The S&P500 rose by +0.06%, the Dow Jones Industrial Average slipped by -0.15%, the Russell 2000 rose by +0.4%, and the Nasdaq Composite Index advanced by +0.33%.  Bonds climbed yesterday and treasury yields slipped by -3 basis points to 0.70%.  Crude oil posted a gain of +2.42%, now hovering just around the now-critical $40 mark.

NXT UP

- Baker Hughes Rig Count (June 19) is expected to come in at 194.33 down from last week’s 199 rigs. The number of rigs is down significantly since the pandemic and decline in crude demand.  For reference the number reflected around 680 active rigs at the start of the year.

- Today is quadruple witching which happens when stocks futures and options expire along with index futures and options. The result is typically lots of volume and volatility.

- Today’s Fed speakers include Chairman Powell, Eric Rosengren, Charles Quarles, and Loretta Mester.

- Next week we will get more regional Fed reports, more housing numbers, manufacturing/services PMI’s, Durable Goods Orders, GDP, PCE Deflator, and University of Michigan Sentiment.  Check back on Monday for calendars and details.

daily chartbook 2020-06-19