|S&P 500 Index||-5.18%|
|Communication Services (XLC)||-3.32%|
|Consumer Discretionary (XLY)||-5.74%|
|Consumer Staples (XLP)||-2.57%|
|Health Care (XLV)||-3.32%|
|Real Estate (XLRE)||-7.02%|
Consumer Staples were off the least out of all the sectors. Americans are taking comfort in the names and products folks grew up on, and are using them to get through this period of quarantine and isolation:
- Drug stores
- Big box stores
- Peanut butter & jelly
The global panic and market meltdown are overshadowing the immense destruction of crude oil, which was already problematic years before the self-destructive war between Saudi Arabia and Russia. Some actions seem more like a suicide pact to take out American shale producers. It’s working. The better names in shale however are going to get federal government help.
On that note, I’m getting a lot of calls and emails on which names are best to be ‘long’ for the one-two punch of government bailouts and Saudi ceasefire. I’m leaning toward Hess Corp (HES) and Pioneer Natural Resources (PXD), but I am not sure. I would caution not to be so focused on the big oversold pops in the oil patch or the overall market.
Get in names that will rally for several years, so you can look back on these days with a silver lining.
My Rose-Colored Glasses
Midway through yesterday’s session, I wrote that I was seeing positive signs in the market, and I took a fair amount of heat. I know even as someone that sees the world through rose-colored glasses, I know that I rankled some feathers, even in good times; my positive suggestion in the middle of another meltdown didn’t go over well.
But watching the tape minute by minute, there were signs of greater demand to buy the dip, even as the downside bias remained firmly to the downside. The tsunami in selling is a beast that feeds on itself and there is no way to douse it in a single shot. There was accumulation between the flames yesterday, and the market caught a bid into the close.
Yesterday was the fourth time in this 2020 Meltdown that saw so much carnage the circuit breakers were tripped (S&P 500 down 7%). The close however was much better than the prior three occasions. The S&P 500 rallied 118 points from the low into the closing bell. That’s encouraging.
Points from Low
By the way, I was a guest on my show, Making Money with Charles Payne on Fox Business, and when I finished my first hit, the S&P 500 turned around and never looked back. #CPEffect
Bond Market Message
I know a lot of winners are being sold during the meltdown, but the surge in the ten-year yield is more than folks cashing in on bond positions. Most bond buyers are true believers and would hold until yields hit 0.0%.
It’s not just that yields are erupting higher, but the yield curve is also widening rapidly. We know there has been major ruckus over the past year when the curve was flattening on the way to inverting.
After the Close
Five Below (FIVE) beat the Street and shares edged higher. While the fact it was higher is interesting, there are other parts of the release that I felt were worth sharing.
- Sales: +14.06%
- Comp-store sales: -2.2%
- Operating income: +23.7%
The company opened six new stores and saw strong margin growth. The stock took it on the chin when coronavirus was all about supply chain and getting in products.
Management successfully tested ‘ten below,’ as the company expanded its senior executive roles and upgraded its IT systems. Although COVID-19 made guidance impossible, I love this statement:
“As we announced earlier today, all of our stores will be temporarily closed beginning Thursday evening through March 31st. We will be paying our associates through this period.”
I’m eager to put money to work before the weekend. Standby.
Equity futures have been under pressure all morning, although poised to open well off the lowest points, which signaled an almost 1,000 Dow point decline. By now, everyone knows trading ranges can buy a couple thousand Dow points in a single session.
There was lots of central bank action overnight with interventions and rate cuts, including:
- South Africa
- European Central Bank
The ECB implemented the Pandemic Emergency Purchase Program (PEPP) less than a week after Christine Lagarde hinted at a more limited role for the central bank in the European bond market. This is her way of saying “my bad.”
"There are no limits to our commitment to the euro," stated President Christine Lagarde.
The problem with these extra packages and actions is it underscores how central banks are chasing issues and challenges, which is not the same as getting in front of them. Fiscal and monetary policy are both woefully following the crisis, and its making matter worse.
They must get in front of the harshest potential economic impact now.
Initial Jobless Claims
- California +14,823
- Washington +8,230
- Nevada +4,192
- Arkansas -611
- Alabama -483
- Puerto Rico -240
I thought this number would be a lot higher, and the fact of the matter is, it will climb, especially in the hard-hit regions of the nation. This is why every company that announces it will limit or hold back on layoffs must be cheered, but many are only doing this assuming the cavalry is coming around the corner.
The market is oversold, but as I have always said, especially in the last couple of weeks, it doesn’t mean it can’t go lower. In fact, at this point, each tick lower is more likely to trigger more ticks lower. But the speed of this descent is remarkable, and the bounce will also set new standards, although not for every sector or company.