Art Hogan’s Market Commentary – April 27, 2020

Morning Commentary

U.S. markets closed on a positive note last week, with the S&P 500 Index rising Friday even as the dollar and Treasuries were little changed. The Dow Jones Industrials added 260 points, or 1.11%. The S&P 500 was better by 39 points, or 1.4%, while the Nasdaq closed higher by 140 points, or 1.65%. The surge on Friday was not enough to keep the three indexes in positive territory for the week. The S&P, in fact, has stalled over the past two weeks, chopping sideways just below the rebound-rally highs, as some growth stocks take a breather and short-term overbought conditions are worked off.

It has been anything but a smooth ride, but the move up from the market lows of late March has been powerful. A month and a day from the most recent bottom, the S&P 500, the Nasdaq Composite, and the Dow have all rallied 20% or more. The S&P 500 now sits 16% below its all-time high, and 26% above its March 23rd low. Big tech stocks like Microsoft and Amazon have helped lift the Nasdaq and the S&P 500. That’s an impressive feat considering the magnitude of negative news that we have received, and that is on the way. A 26% rise for the S&P 500 over three weeks might very well be too far too fast that will revert in the near term. But the 34% drop in the 23 days that preceded it may turn out to have been just as much of a stretch.

It would not be surprising for the indexes to continue digesting the move, disseminating a flood of corporate earnings in coming weeks, we would not be surprised to see a potential pullback of a few percent from here simply as a matter of technical market positioning.

A vast majority of people that I have had a chance to talk to, are of the mind that the markets need to retest the lows, as that is historically how markets have worked. Markets sell off when a problem is first identified, rallies as the situation gets stabilized, and then falls again as the economic damage becomes clear. That was what happened in 2008: The market tumbled after Lehman went bust, rallied when TARP and other acronyms helped stabilize the financial system, and then fell again as the economic—and earnings damage becomes clear.

The fact that the retest camp is the consensus view, coupled with the fact that this will be the first time in history that we have intentionally frozen the economy, knowingly causing a recession, to minimize the damage of a worldwide healthcare epidemic, gives me pause. There are too many unprecedented factors involved here to simple believe that we are now destined to follow a preset course. We have the pace of the sell-off, the fastest all-time-high to bear market ever. There is the largest fiscal policy response to a crisis, in the history of mankind. We have a Federal Reserve that is deploying its entire global financial crisis monetary toolkit in the span of a couple of weeks in 2020—and then going still further. Americans are being asked to stay-at- home and practice social distancing, and they are complying, not complaining. The healthcare industry is working at lightning speed to find a therapeutic response to COVID-19, and eventually a vaccine.

While it is certain that we will face news on both the pandemic front, and in the economic data stream that will be horrendous, those are the known unknowns. There will certainly be a tsunami of negative news that will come crashing down on markets and investors. That is consensus. We have that assumption baked in. What we don’t know is what the world looks like on the other side of this, and how much of the potential economic damage will be mitigated by the historic policy response.

I don’t believe that we need to retest the lows at all. We may well spend a preponderance of time in this middle ground, 20% from both the highs and the lows, chopping around violently until the new COVID-19 cases reach a peak in the US. And then we will start the incremental process of thawing the economy that we intentionally froze to kill a dangerous virus.

Other News:

NY’s reopening plan takes shape – New York’s coronavirus deaths dropped to 367 Sunday, the lowest in almost a month, as Governor Andrew Cuomo sketched out a phased-in reopening that begins with construction and manufacturing. That could start as soon as May 15, he said, probably upstate before the New York City area. The governor’s briefing — filled with technicalities and conditions for restarting the state — was a sharp contrast to the depths of the virus outbreak in New York. On April 9, a record 799 people died. Total fatalities are now 16,966, even as new hospitalizations and intensive care cases continue to fall. “There is no doubt that, at this point, we’ve gone through the worst,” he told reporters in Albany. “And as long as we act prudently going forward, the worst should be over.”

BJ back to work – Prime Minister Boris Johnson returned to work and moved to stamp his authority on a government under pressure over its handling of the U.K. coronavirus outbreak, warning that to lift a nationwide lockdown now would risk both a health crisis and an “economic disaster.” Speaking exactly one month after he went into isolation with a case of Covid-19 that would go on to put him into intensive care, Johnson said the U.K. is close to having the outbreak under control, and urged people not to relax the social-distancing efforts that had achieved this. He compared the virus to a mugger, and said the nation had “begun together to wrestle it to the floor.”

NFL Draft a Hit – Seth Markman was just as nervous as NFL coaches and general managers about the unknown factors involved with a virtual draft. But the ESPN executive producer said he was overwhelmed with how everything came together over the three days. It also ended up being must-see TV as the first significant live sporting event since the coronavirus pandemic ground everything to a halt. The draft averaged a record 8.4 million viewers over all three days, according to the NFL and Nielsen. The previous high was 6.2 million last year. “I thought a coach or general manager might put a towel on the camera or point it another direction, but there were zero issues,” Markman said. “There were a couple times that we lost a feed or two, but it quickly came back.”

After early concerns about how the NFL could conduct a virtual draft, everyone appeared to end up having fun with it. Coaches and general managers embraced their children or spouses being on camera and draft picks got to watch from home comfortably instead of waiting in a green room. Even normally stodgy New England coach Bill Belichick got into the spirit of things by giving his dog, an Alaskan Klee Kai named Nike, some television time.

The Week Ahead:

One of the common features of this earnings season is a combination of better than feared Q1 results coupled with the pulling of future guidance, as it is virtually impossible to predict the extent of the coronavirus driven economic shutdown. We will get to hear results from 160 S&P 500 companies reporting earnings this week. Adidas, Caterpillar, Merck, 3M, Pfizer, UPS, Harley, Cummins, Alphabet, Mondelez, Starbucks, AMD, Yum China, Boeing, Hasbro, MasterCard, Facebook, Microsoft, Tesla, Qualcomm, Comcast, McDonalds, Twitter, Kraft, Kellogg, Gilead, MGM, Whirlpool, Western Dig, Amazon, Apple, Visa, Chevron, Exxon, Honeywell, are among companies reporting quarterly results in the coming week.

The main event on the economic-data calendar this week will be a first look at how the U.S. economy held up in the early stage of the coronavirus outbreak and stay-at-home orders. The Bureau of Economic Analysis releases its initial estimate of first-quarter U.S. gross domestic product on Wednesday. Economists forecast an annualized 4% ­contraction, compared with a 2.1% growth rate in the fourth quarter of 2019.

Other economic data out next week includes the Conference Board’s consumer confidence index for April on Tuesday, the BEA’s personal income and spending figures for March on Thursday, and the Institute for Supply Management’s manufacturing purchasing managers’ index for April on Friday.

The Federal Open Market Committee will announce a monetary-policy decision on Wednesday. With its benchmark interest rate near zero and multiple lending and bond-buying programs worth trillions of dollars already in place, there’s unlikely to be major new action next week. But Federal Reserve Chairman Jerome Powell’s press conference will get plenty of attention for insight into how central bankers view the state of the U.S. economy and what they expect the recovery to look like. Powell will also face questions about how long he expects the Fed’s numerous programs and lending facilities to remain in place.

Monday – Dallas Fed for April (10:30 am ET), and Earnings (Adidas, AMG, AWI, Bayer, CHKP, CMS, and DORM, before the open; AMKR, ARE, AVT, BRO, CE, CGNX, CINF, CR, FFIV, KDP, NOV, NXPI, OMF, PFG, PI, PPG, QTS, SANM, TCF, and UHS after the close).

Tuesday – US Advance Goods Trade Balance for March (8:30 am ET), US Wholesale and Retail Inventories for March (8:30 am ET), Case-Shiller Home Prices for February (9 am ET), Conference Board Confidence figures for April (10 am ET), the Richmond Fed for April (10 am ET), and Earnings (AB, ABB, AXE, CAT, CBSH, CMI, CNC, DHI, ECL, HOG, HSBC, IQV, MMM, MRK, MSCI, Novartis, NUE, PEP, PFE, PII, PPG, ROK, ROP, Santander, SC, SIRI, SPGI, TEL, Thales, UBS, UPS, WAT, WDR, YNDX, and ZBRA before the open; AKAM, AMD, BYD, CALX, CERN, CHRW, CSGP, CYH, DXCM, F/Ford, FEYE, GOOGL, IRBT, JNPR, LSCC, MDLZ, MKSI, MRC, MRCY, MSTR, MTH, MXIM, OI, PAYC, Samsung Electronics, SBUX, THG, TNET, WERN, WW, and YUMC after the close).

Wednesday – US Q1 GDP (8:30 am ET), US Pending Home Sales for March (10 am ET), the FOMC Decision (2 pm ET Statement and 2:30 pm ET Press conference), and Earnings (ADP, Airbus, AMS AG, AMT, AVY, BA, Barclays, BDC, BKU, BSX, CME, CRTO, Daimler, Deutsch Bank, DIN, EAT, GD, GE, GlaxoSmithKline, GRMN, HAS, LH, LM, MA, MAS, MKSI, MKTX, NOC, NSC, NYCB, OC, OSK, PSXP, R, Remy Cointreau, SHW, SPOT, ST, Standard Chartered, TUP, VLO, Volkswagen, WPP, and YUM before the open; ADM, AFL, ALGN, CACI, CCI, CONE, DRE, EBAY, FB, HIG, HOLX, MSFT, MTSI, NLY, NOW, OLN, PRI, PTC, QCOM, RIG, RJF, TDOC, TSLA, TTMI, UCTT, URI, VRTX, and ZGNA after the close).

Thursday – US Personal Income / Spending for March (8:30 am ET), the US PCE for March (8:30 am ET), the US Initial Weekly Claims (8:30 am ET), the US Employment Cost Index for Q1 (8:30 am ET), the Chicago PMI for April (9:45 am ET), and Earnings (ARW, BASF, BAX, BC, BEN, Carlsberg, CG, CHD, CI, CMCSA, COP, DAN, DNKN, DOW, ETN, GNRC, ICE, IMAX, IP, JHG, K, KHC, KLIC, LAZ, LNG, MCD, MMC, MO, NLSN, Nokia, PH, PNR, Reckitt Benckiser, Royal Dutch Shell, SIX, Swiss Re, SWK, TAP, TPR, TWTR, TXT, and WCC before the open; AAPL, AJG, AMGN, AMZN, ATUS, BAND, BL, BMRN, BRKS, BZH, COG, EBS, EMN, FND, FTV, GHL, GILD, ILMN, LPLA, MGM, MOH, MTX, NATI, NCR, OTEX, RRC, RSG, SGEN, SPXC, SSNC, SWI, SWN, SYK, TNDM, V, WDC, WHR, X, and ZEN after the close).

Friday – US Manufacturing PMI for April (9:45 am ET), US Manufacturing ISM for April (10 am ET), US Construction Spending for March (10 am ET), US Auto Sales for April, and Earnings (ABBV, AON, APO, CBOE, CHTR, CL, CLX, CVX, EL, HON, HRC, HUN, ITT, JCI, LYB, NWL, PCG, PSX, TEX, WETF, WY, and XOM before the open).

Upcoming Catalysts:

GILD coronavirus drug (Remdesivir) trial results will be made public Apr 27 in China

Connecticut, Delaware, New York, Pennsylvania, Rhode Island primaries – Tues Apr 28.

FOMC meeting – Apr 29.

ECB meeting – Apr 30.

OPEC meeting – June 9-10.

G7 Leader’s Summit – June 10-12. Camp David.

Fed will publish bank stress test results by June 30.

ECB Forum on Central Banking – June 29-Jul 1 in Sintra, Portugal.

Fed will communicate its new monetary policy framework – first half of 2020.

Democratic Convention – starts August 17 in Wisconsin.

Republican Convention – starts Aug 24 in Charlotte.

Jackson Hole Conf. – likely to begin Thurs 8/27.

First US Presidential debate – Sept 29, 2020.

First (and only) VP debate – Oct 7, 2020.

Second US presidential debate – Oct 15, 2020.

Third US presidential debate – Oct 22, 2020.

US election – Tues Nov 3, 2020.

In the meantime, remember to take care of yourself and your families. We all need each other right now. Stay safe and follow CDC Guidelines for preventing Covid-19 spread.

Most Helpful Virus sites…

JHU CSSE Global Cases: http://bit.ly/39I5NTC

U of Wash Projections: https://bit.ly/2R1Zd2U

Google Coronavirus map : https://bit.ly/2xNPEOb

Kinsa App temps: https://bit.ly/3dYPTH4

Axios Peak by State: https://bit.ly/2R3LjgA

91-DIVOC : Curve visualization https://bit.ly/2UzUsQh

CDC Virus: https://bit.ly/2R2Ycb2

NYC Health : https://on.nyc.gov/2X2lzFf

What to Put in a Covid-19: Emergency Home-Care Kit

Cleveland Clinic Coronavirus Fats: Facts about COVID-19

The views and opinions expressed herein are those of the analyst Arthur Hogan and are current as of this report’s posting date. This commentary is general in nature and should not be construed as investment advice. Opinions are subject to change with market conditions. Neither Art Hogan nor National Securities Corporation is affiliated with the issuers mentioned herein, and no part of this analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the analyst in the report. The views and strategies may not be suitable for all investors and are not intended to be relied on for legal or tax advice. Please note that any investment involves risk including loss of principal.
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