Virus Spread Draws Market Focus

The bears roared on Wednesday with virus resurgence fears leading to large Evening Star type patterns after the day’s big black candles.  A 0.70% gap down led to a strong selloff that lasted all morning.  The afternoon saw a choppy sideways grind the rest of the day.  For the day SPY lost 2.51%, DIA lost 2.63%, and even QQQ lost 2.06% after the big tech names finally gave up about 10:30am.  If there was any good news for the bulls, it was that all 3 major indices closed up off the lows.  However, that isn’t much.  The VXX rose to 36.72 and T2122 fell dramatically to 2.37 (far into oversold territory).  The 10-year bond yield fell slightly to 0.679% and Oil (WTI) fell almost 6% to $38.01/barrel.

During the day, perhaps in an attempt to buoy markets, it was reported that the Fed had agreed to loan $2.3 Trillion, but so far had only loaned $143 Billion.  So, at least in theory, the Fed has 94% of its powder dry on the loan front.  In other Washington news, for the second time this week Treasury Sec. Mnuchin told a reporter he may consider extending the 2019 Income Tax filing deadline.  This time the potential extension would be to September 15 (from the current deadline of July 15).  However, as in the Monday interview, he said “as of now, we’re not intending to do it…but we may consider it.”

However, by far the biggest story on the day was the resurgence of the virus.  The global headline numbers are 9,555,804 confirmed cases and 485,573 deaths.  The WHO said that the peak has not yet been reached in the Americas with more than a million new cases in the last week. However, Europe (with the exception of Germany) continues its easing and reopening.  For example, many tourist attractions opened across France today.

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In the US, we now have had 2,462,713 confirmed cases and 124,282 deaths.  The count made Wednesday as the worst number of cases we have seen so far, with 45,557 new confirmed cases in the country.  CA (7,149), FL (5,511), TX (5,489) were the worst-hit states, but there were 26 states seeing an increase in new cases on the day and 30 that saw at least a 5% increase in their 7-day average of new cases, while 4 more states with an average rising less than 5%.  There was also a rise in virus hospitalizations across 14 states.  In related news, the early epicenters (NY, NJ, CT) have now imposed a 14-day quarantine on travelers coming from states with the highest infection rates (AL, AR, AZ, FL, NC, SC, TX, UT, WA).

Overnight, Asian markets were mostly significantly red.  However, China stayed just on the green side of flat and Taiwan gained 0.42%.  In Europe, markets are mixed so far with Germany and France green, while the UK is in the red.  There is a similar mix across the smaller markets.  As of 7:30 am, US futures are leaning toward the red side with large-caps pointing toward a gap lower of about 0.4% and the NASDAQ just on the red side of flat.  

The major economic news for Thursday includes May Durable Goods, Q1 GDP, May Retail Inventories, May Trade Balance, and Initial Jobless Claims (all at 8:30 am).  There are also 3 Fed speakers Kaplan (9:30 am), Bostic (11 am), and Mester (12 pm).  Major earning s reports for the day include ACN, DRI, MKC, RAD, and WOR before the open.  After the close, NKE and SNX report.

It’s early, but it looks like markets are continuing to fear the virus more than they expect a V-shaped recovery. Remember this is not par for the course as the Bulls have ignored the virus and all bad news for some time. So, a reversal of mood could happen a the drop of a hat. Also, keep in mind that economic news may carry a bigger stick in this environment. Finally, we have Quarter-end rebalancing coming. So, it is possible that fund profit-takers and rebalancers cause a rotation. Keep watching the short-term chart and be ready for the whipsaw that has been the norm.  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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