Market Waits on Jobless Claims

Markets were unable to recover from the gloom (reality?) Fed Chair Powell spread early in the day.  So, the bears had their second day in charge.  The SPY fell 1.77%, the DIA fell 2.21%, and QQQ fell 1.25%.   VXX climbed another 10% back to 39.65 and oddly the T2122 4-week high-low ratio climbed back into overbought territory at 85.37.  The 10-year bond yield was down slightly to 0.654% and Oil (WTI) rose again to $25.70/barrel.

As mentioned, Chair Powell painted a gloomy picture of the economy and, as was expected, he also knocked the idea of negative rates as an unsettled policy without proven benefits while it is proven that it hurts banks and their ability to lend.  GS later made comment on Powell’s testimony saying it fears a second-wave of virus infections and, in that case, they feel the Fed would consider negative rates.  However, like Powell, they also don’t think that action would be very helpful to the economy.  Later, analysts began saying, based on the gloomy picture the Fed members are painting, they now expect the Fed to announce another large QE program at or before its June meeting (which markets would love).

On the Virus front itself, the global headline numbers are 4,452,777 confirmed cases and 298,737 deaths.  In Russia, the runaway spread continues with another day of record new cases (raising it to have the second most cases to the US).  The EU also told its member nations to only receive tourists this summer if their situation allows, including current case trends, having enough testing/tracing capacity, etc.  This was significant because tourism accounts for 10% of the EU's GDP. Meanwhile, Japan says a treatment trial using recovered patients’ plasma will begin in July.

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In the US, we have 1,430,348 confirmed cases and 85,197 deaths. In business, AMZN said it will rollback wage increases and cut overtime rates on May 30 as it feels the hazards have now passed.  (An interesting claim since it also announced separately that it is now designing and will sell face shields for frontline workers.)  However, in a good sign, MA announced it is seeing signs of improvement in consumer spending as charges were down 6% from a year ago, but up 16% from a month ago.

Overnight, Asian markets were all significantly in the red.  In Europe, the same is true will all major markets even more deeply red so far today.  As of 7:30 am, US futures are waiting on the jobless claims number, but are on the red side of flat, now pointing to a 0.20%-0.40% gap higher at the open. 

The major economic news for Thursday is limited to Apr. Imports / Exports and Weekly Jobless Claims (both at 8:30 am) and 2 more Fed speakers.  Major earnings reports are also very light with JWN and NCLH reporting before the open and AMAT, CVET, and NLOK reporting after the close.. 

A small dose of reality has hit the bulls in the last couple of days.  Those losses make the last month look both choppy and range-bound in retrospect.  Don’t expect this setback to last long as every day more businesses and areas of the country reopen.  However, the prospect of a second wave caused by poor adherence to guidelines will loom for months, even if it does not materialize.  So, the short-term pullback continues and volatility remains high.  Continue to focus on the short-term chart in front of you.  Don’t chase or predict, and remain cautious about longer-term swing trades.

Ed

Trade Ideas for your consideration and watchlist today: No trade ideas for Thursday. Trade smart, take profits along the way and trade your plan. Also, don't forget to check for upcoming earnings. Finally, remember that the stocks/etfs we mention and talk about in the trading room are not recommendations to buy or sell.

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