99 days later. Stocks rallied yesterday going from lows to almost-new highs in just 99 days. The cost of living is ticking up which is encouraging for stocks but not so much for consumers.
N O T E W O R T H Y
28 weeks later. Before the pandemic became a pandemic there were some blaring hints that something was amiss, when a once-unknown-to-many town in China, completely cut itself off from the rest of the country in response to a virus outbreak. The news was not ignored, as some astute investors began to take note. Markets were, in fact roiled, but the real damage was yet to come. With very little data to go on, we in the investment community began measuring cycles in hours as things unfolded. We looked at past pandemics as guides to what might be expected of this yet-unnamed virus. As it became clear that the new Coronavirus would spread quickly, unlike recent pandemics, markets really began to feel the heat, falling some -12% in just a matter of 10 days through the end of February. Nowadays, 12% doesn’t seem like a big deal, but just prior to the outbreak, the market felt unflappable. When the S&P500 made its last all-time high on 2/19, the VIX index was 14.38, which implied that traders were expecting +/- 0.89% daily moves. We all know that things were about to get much worse. By the time stocks had fallen by that first -12% many of us went from counting in hours to counting in minutes. You could go back to my notes and find tag lines that read “28 hours later” and “28 minutes later”. Yes, of course, I had a “28 days later” too. By mid-March, stocks hit a low, falling by almost -34% from their prior all-time high, a month earlier. With very little air to breath, stocks appeared to be in a free-fall, setting off circuit breakers before traders could even get half-way through their extra-extra-large morning coffees. By that point, the VIX index spiked to around 82, a new record (we hit 80 in November, 2008). A VIX at 82 implies a daily market move of +/- 5%, and if you haven’t consciously erased those memories, I will remind you that the number is about right. Hours became minutes, became seconds, became milliseconds. The true damage to the economy was not yet known when markets hit their lows but we were all well aware that it was going to be rough going. Since that low, 99 days ago, we have seen the markets recover in break-neck fashion. We now have a good handle on just how bad the economy fell in the first and second quarters. We have seen a record spike in unemployment, which jumped from a 60-year low to over 10%. We have seen future contracts of one of the world’s most critical industrial commodities, crude oil, briefly trade negative, which was thought to be impossible… until it wasn’t. Speaking of negative, the world is awash with negative interest rates. Those that are not negative are pretty close, hovering on or just above 0% (of course, there are some holdouts like Argentina’s 38% rate, but that is for a different reason and different note). The Virus continues to spread as economies begin to churn back to life as we remain hopeful that a vaccine and cure are close. Many companies around the world are in a race to get through clinical trials and we expect to get some credible results late next month into October. There are positive signs from earlier stage trials, which has been helping markets regain ground. The real economy is showing some signs of a turnaround, but employment remains week and uncertain. A new stimulus bill seems politically unattainable, but will hopefully come to pass soon. It has been about 28 weeks since the first confirmed case of COVID-19 in the US and the economy is on tender hooks while markets remain optimistic that in 28 weeks from now, which is the first quarter of 2021, uncertainty about the future will abate. The S&P500 briefly traded above its all-time high in yesterday’s session before a close just below it. For now, I am still counting the hours.
THE MARKETS
Stocks rallied yesterday on continued hopes that things are turning around as a jump in consumer prices hinted that American’s are spending money, which in this case may be a good thing. The S&P500 rose by +1.40%, the Dow Jones Industrial Average climbed by +1.05%, the Russell 2000 Index advanced by +0.52%, and the Nasdaq Composite Index regained some ground, adding +2.13%. Bonds continued to slip with 10-year treasury yields adding another +3 basis points to 0.67%.
NXT UP
- Initial Jobless Claims (Aug 8) are expected to be 1.1 million, down from last week’s 1.186 million new claims.
- Continuing Claims (Aug 1) may have ticked down to 15.8 million from 16.107 million.
- Atlantan Fed President Raphael Bostic and Fed Governor Lael Brainard will speak today.
- After the bell we will get an earnings announcement from Applied Materials.