Stimulated!

Stimulated!  Stocks surged yesterday on hopes of a large stimulus package from Capitol Hill.  The Dow Jones Industrial Average had its single largest point move on record and its largest daily percentage gain since 1933, which was in the middle of the Great Depression.

 

N O T E W O R T H Y

 

Emotional outpouring: 

Yesterday’s rally in stocks was one for the record books… literally. Think about it… the Dow Jones Industrial Average rose by +11.37% yesterday.  That would be a very respectable return for an entire year and is almost +4% higher than the average annual historical return of the index. Stocks began yesterday’s session in the green and then never really looked back, hitting session highs just minutes before the close. With recent positive sessions ending with selling pressure, buying pressure into the close is certainly a good sign.  If you look across sector performance yesterday, the ones which performed best were the ones which were recently hit hard. Those would be energy, financials, and materials.  Airlines and cruise lines drew a hefty bid with many stocks trading up by double digits.  Even Delta Airlines rose by +21% despite having its ratings cut to junk status by S&P. It is clear that yesterday’s trade was dominated by bargain hunters buying the hardest hit stocks and sectors.  A stimulus package aimed at beleaguered industries gave investors confidence in their purchases. Last night, WHILE YOU SLEPT, Senate leaders announced that they had reached a bipartisan agreement with the Whitehouse for a nearly $2 TT (that’s trillion) economic stimulus package. Details are still emerging, but the deal would include $500 BB in aid for hard-hit industries, $350 MM for small and mid-sized business, $150 BB for healthcare providers and hospitals, checks for mid and lower income families, increased unemployment insurance, and tax deferrals.  Most of these were largely expected but the devil was in the details. Some of those are interesting as well.  It appears that none of the aid could go to any Trump family controlled investments while there will be strict controls over any aid given to corporations.  The bill is currently being drafted and is expected to be passed by the Senate and House to be sent to the President for his signature as early as today.  All good news and in line with Wall Street’s expectations.  Now let’s get back to yesterday’s rally.  While it is obvious that many stocks appear quite cheap as a result of the recent selloff in the stock market, it is still too early to determine just how cheap stocks really are.  The nation just began its historic business pause just days ago and the economic impacts of the shutdown are highly speculative while the ramp-up of the virus is barely upon us.  What is clear: we have not even begun to understand the negative impacts the pause will have on the economy and things will get worse before they get better on the healthcare front.  Drilling further into individual companies, many have withdrawn their forward guidance… withdrawn, not updated.  That means companies themselves are not confident enough to provide predictions of their revenues in the next few quarters.  While efforts by the Fed, the President, and Congress are monumental, we still have to weather the virus spike and economic downturn in the days ahead.  Markets are still quite volatile with the VIX index around 65 this morning, indicating daily up/down movements could be around 4%. It’s far too early to tell if yesterday’s session was the beginning of the market’s turn-around and while it is certainly an encouraging sign, we will likely have many more buying opportunities in the days ahead.

 

THE MARKETS

 

Stocks leapt in yesterday’s session on hopes of an economic stimulus package and encouraging signs out of China. The S&P500 traded up by +9.38%, the Dow Jones Industrial Average soared by +11.37%, the Russell 2000 climbed by +9.39%, and the NASDAQ Composite Index advanced by +8.12%. Bonds climbed slightly and 10-year treasury yields added +6 basis points to 0.84%.  Crude oil is still in motion, climbing +2.78% yesterday.  Hopes that the US would reach an accord with the Saudis on oil production drove crude prices up.  Energy sector companies got a boost yesterday from the jump in oil prices and Chevron announced significant cost cutting measures which were applauded by investors.  CVX rose by +22.74% in yesterday’s session providing investors a day of relief after a very difficult year to date.

 

NXT UP

 

– This morning, the Mortgage Bankers Association announced that Mortgage Applications fell by -29.4% last week after falling by -8.4% in the week prior.

– Preliminary February Durable Goods Orders is expected to show a decline of -1.0% down from the prior decline of -0.2%.

– FHFA House Price Index is expected to have grown in January by +0.4% versus a +0.6% growth in December.

 

daily chartbook 2020-03-25