Bulls Trying But Virus Threat Remains

After a small gap down (on higher than expected Initial Jobless Claims), the bulls stepped in Thursday and rallied for the day.  The downtrend remains in place, but it was a nice white candle (closing near the highs) in all 3 major indices.  The SPY closed up 1.07%, the DIA up 1.10%, and QQQ up 0.95%.  VXX fell back to 35.39and T2122 climbed out of oversold territory to 29.25.  10-year bond yields fell slightly to 0.682% and Oil (WTI) climbed back to $39.08/barrel.

The financials led the market higher on Thursday as traders hoped that another announced decrease in bank regulation would lead to more profits.  However, after-hours, the Fed told the big banks that they must suspend buybacks and cap dividends at current levels for at least the 3rd quarter. This came after the Fed reported that the annual stress test found some banks would be dangerously close to the minimum capital levels needed because of the coronavirus.  Banks will also be required to resubmit their loan payout plan every quarter in additional scrutiny caused by Fed concern of potential loan defaults. 

The other major story on the day was the virus, especially in the US.  The count shows we now have had 2,504,676 confirmed cases and 126,785 deaths.  The national 7-day avg. of new cases is the highest it has been at over 31,100 per day (a 34% increase in the average from a week ago).  In TX, the outbreak caused Gov. Abbott to announce the halting of the state’s reopening.  In FL, Gov. DeSantis also said “the state now has no plans” for continuing its reopening.  Out in CA, Gov. Newsom had to declare a budget emergency so that the state could shift more funds into testing, PPE, and medical equipment.  Overall, 30 states reported an increase in the number of new cases, 12 had a new high daily case count and 16 states had rising virus hospitalizations. 

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Globally, the headline numbers are 9,738,374 confirmed cases and 492,390 deaths. Brazil remains the world epicenter as it reported over 39,000 new cases Thursday.  Peru also had another record high case count.  Further North, Mexico also is seeing a surge in infections, including the Finance Minister who tested positive two days after a video showed him standing right next to their President and the other cabinet members.

Overnight, Asian markets were mostly green.  Hong Kong was the only exception as the HSI lost almost a percent.   In Europe, markets are also green across the board so far.  The 3 major bourses are all up over 1.25% halfway through their day.  As of 7:30 am, US futures are mixed, with the big 3 indices just on either side of flat. 

The major economic news for Friday includes May Personal Spending (8:30 am) and Michigan Consumer Sentiment (10 am).  There are no major earnings reports on the day. However, it was reported early that mortgage bailout requests rose this last week, now accounting for 8.8% of all mortgages in trouble.

It’s still early, but it is looking like markets want to drift higher toward the weekend. However, be wary of the potential for profit-taking as the quarter winds down and of the weekend news cycle (again likely to be dominated by bad virus news).  Also remember this is payday, so lock-in some profit if you can.  Focus on the short-term chart in front of you and be ready for the whipsaw that has been the rule for some time.  As always, don’t chase, don’t predict, and don’t be greedy (take profits and move your stops as you go).

Ed

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