Virus Surging Here But China Recovering

After a small gap down Friday, TX began to rollback its reopening and FL did the same later in the day.  That was all the Bears needed to crush the bulls during the session.  All 3 major indices put in large black candles and closed near the lows.  At the close, SPY was down 2.38%, DIA down 2.74%, and QQQ down 2.36%.  The VXX rose to 37.60 and the T2122 (4-week Avg. High-Low Ratio) fell back deep into oversold territory at 6.31.  The 10-year bond yield fell to 0.641% and Oil (WTI) was off to $38.20/barrel.

On Sunday, HHS Sec Azar said “the window is closing” for the US to get virus spread under control and “we have to act.”  This comes as many states began rolling-back or postponing their reopening measures.  This may be a signal for possible rotation from “reopening stocks” (like travel, restaurant, and retail names) back toward “stay home stocks” (like ecommerce, grocery, online services).

Another major story is advertisers taking a stand by stopping their advertising spend on social media over that channel’s failure to reign in hate speech and disinformation on their platforms. On Friday, UL was the big name.  After-hours, KO joined the effort, then DEO and SBUX added their names to 160 other major advertisers that are taking part in the boycott on Saturday. In addition to the 160, other major advertisers such as PG are still reviewing their advertising channels “to ensure content accuracy and respect to all people.”  So, FB and TWTR stocks were hammered on Friday and that news did not improve over the weekend.

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On Sunday, China announced May Industrial Production numbers.  These showed that profits rose 6% year-on-year, to $82 billion for the month.  This was the first monthly profit China's Industrial Sector has seen since November and was a vast improvement over April’s 4% year-on-year decline.  This is evidence that China’s economy is now rebounding as cost remains under control and output has reached profitable levels.  Analysts still expect Chinese government economic policy to remain supportive for some time.  However, the profit is a good sign that the second-largest economy is starting to come out of the trough.

However, the main story remains the virus, especially in the US.  The count shows we have now had 2,637,180 confirmed cases and 128,438 deaths nationally.  36 states have daily new case rates that rose more than 10% (12 of those rose more than 50%) from the prior week.  Only 2 states had falling new case rates.  However, economic activity such as driving/public transport use, hotel occupancy, and restaurant bookings all continue to increase nationally.

Globally, the number of cases topped 10 million, with 10,272,143 confirmed cases and 504,965 deaths.  While it is Brazil, Peru, and Chile that are the South American countries with the most rampant outbreaks.  However, it was Argentina that reinstituted lockdown in the capital Buenos Aires amidst exponential growth in new cases.  In the UK, the city of Leicester (midlands) is publicly debating going back into lockdown due to a spike in cases in the city.

The only major economic news for Monday is May Pending Home Sales (10 am).  Major earnings reports for the day are limited to MU after the close.  However, also of note is that CHK (the poster boy for Shale Oil producers) filed for bankruptcy Sunday and expects that move to wipe out $7 billion in debt. It is unclear if this reads-through to other shale producers since the price has been back at levels (near $40/barrel) that are purportedly profitable for many of them. One last item is that BA is reportedly starting its 3-days of recertification test flights for the FAA.

It’s looking like a volatile day for markets as the fear of another shutdown looms and bullish views of a recovery fight it out.  However, remain wary of the potential for profit-taking or rebalancing as the quarter ends Tuesday and many funds will be making this a short week, if they come into the trading room at all.  Keep your focus on the short-term chart and right now that chart says the trend is bearish with potential support in the large-caps now at hand.  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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