Morning Commentary
“California is monitoring 8,400 people who traveled to Asia”, Governor Gavin Newsom said.
I thought the selling in the last two days would be possible if there was a death in the United States after the first potential community transmission of the coronavirus. Instead, the news flow and headlines have had an even greater impact. Yesterday, the market staged a strong rally attempt early in the session, then-Governor Gavin Newsom announced that 8,400 people who recently returned from Asia were being monitored.
It’s a large number. I think it’s great we have a headcount and action is being taken. Soon, the Centers for Disease Control and Prevention (CDC) will distribute better detection kits, which also means we could see an uptick in known infections.
With headlines like that, hopeful news isn’t resonating, in part because it’s not getting a lot of ink or airtime.
The folks in Nassau County, New York, got the all-clear signal yesterday, and the news wasn’t even a blip. The day before, news of their potential infections erased a 400-point rally in the Dow Jones Industrial Average (DJIA) and even greater moves in the S&P 500 and the NASDAQ.
The selling now is driven by several factors:
The unknown, coupled with a lack of knowledge on things such as mortality rates and the community transmission of the coronavirus, leave people to imagine the worst.
Reports of the nation being unprepared are adding to the sense of doom:
Selling begets selling by man and machines.
The ugly side of passive investing, which is just an organized herd investing that creates an amazingly profitable positive feedback loop on the way up, but a negative feedback loop on the way down. The lower the stocks go, the more funds they must shed from their portfolios.
Technical levels were shattered, leaving would-be buyers without markers or buy levels.
Oversold Bounce
It might be hard to imagine, but there will be upside sessions where the Dow rallies between 500 and 1,000 – and the bias is obviously to the downside. One big driver would be a Fed rate cut. Beyond that, we need more days to go by with signs of slowing infections and lower risks.
Positive news on vaccines. There is a global race that probably will see a vaccine out of the United States or Israel, ready for expedited trials within weeks.
I also think we might see the White House put the brakes on Chinese tariffs to help their ailing economy. Such a move would make the globalists sitting on hundreds of billions of dollars to buy stock as a sign of appreciation.
Meanwhile, this is a worst-case scenario, aided by the fact the market was not only at an all-time high, but it also has been amid the greatest rally ever.
There is no doubt this is unnerving, but it’s also about creating investment opportunities. If demand destruction is limited, this could be approaching the greatest entry-level since March 2009. However, it’s about being cool and not forcing the issue.
Watch Ten-Year Yield
The ten-year yield traded down to 1.24%, then rallied to 1.327% before slipping lower. It looks as if equity indices, including the Dow Jones Industrial Average, are taking their cue from the ten-year yield. With that in mind, stocks present such a superior investment to bonds, sans the heightened state of terror that - at some point - will be a greater investment consideration for deep-pocketed institutions.
Meanwhile, Utilities have surpassed Energy for the first time, even as a greater percentage of the S&P 500. The mighty have truly fallen. There was a time when Energy, especially oil companies were the (evil) face of capitalism. However, these days, they are grappling for relevance amid falling oil prices and the war on fossil fuels. In March 2009, Energy was 14.3% of the S&P; and now, it’s just a tad above of 3%.
Yes, You Have Our Attention Now!
Earlier in the week, I wrote that the 1,000-point sell-off in the Dow seemed too orderly for many old-school market watchers, not measuring up to traditional capitulation - 2,000 points later, we can say people are afraid.
Metrics |
NYSE |
NASDAQ |
Advancing |
313 |
482 |
Declining |
2,700 |
2,822 |
52 Week High |
22 |
56 |
52 Week Low |
696 |
568 |
Advancing |
491.86M |
937.18M |
Declining |
6.69B |
3.67B |
Last night
The economic data from South Korea and Japan mostly came in better than expected, as the coronavirus infections continue to fade in China.
South Korea
Japan
China Coronavirus Update
Portfolio Approach
The model portfolio has a cash level of 15%. Of course, I wish we had more, but everyone should have some dry powder and be prepared to act. Nonetheless, it has been smart not to force the issue, even as favorite long-term ideas come in.
Today’s Session
The equity futures spent all morning trying to cut losses, then word came that Fed officials Bullard and Kaplan are still resisting any rate cut action to combat the coronavirus. Meanwhile, more good economy data goes begging, but keep it in mind, as we are oversold and soon will be taking action.
More details on that on the afternoon note.
Comments |
I agree with all your comments on the reasons why, but I think you forgot one big one; the fact that the Democrats are pushing the panic as far as they can to capitalize on the Coronavirus so they can get into power again. To me that is unconscionable as an American citizen! William Brown on 2/28/2020 10:13:42 AM |
RE: ". . . then-Governor Gavin Newsom announced . . . " Priceless!! If only, eh? Spencer Brucker on 2/28/2020 10:24:49 AM |
These people have totally lost their minds Dan Knudson on 2/28/2020 10:54:52 AM |
The problem is 24-7 cable news and politics. I notice most "suspected cases" occur in cities like NY and places like California. The purpose of cable news is, bottom line, to make money. That happens best if a panic can be fomented and to accomplish this, we must focus on the negative and unknown. Frankly, no one I know is even talking about this virus so your "average man on the street" isn't nearly as obsessed as they would like us to be. They've finally found a way to hit the market - Buckle up, it's going to be a long ride. Just my opinion. Lynn R. Terelle on 2/28/2020 11:05:07 AM |
I totally agree it's the media and the Dems don't give a damn about the American people they would rather cut off every body part than give Trump another win. Horrible horrible people Denise Autin on 2/28/2020 11:10:16 AM |
Tune out the Democrats as they push the panic buttons on Coronavirus. It's laughable that these people who believe in open borders, no vetting, drivers licenses for everybody, sanctuary cities with thousands of homeless living in horrible unsanitary conditions are preaching to Donald Trump about not doing enough to stop the contagion. When the faster diagnostic tests, new medicines to treat the virus, containment happen, it will be because we have a President who will lead the US in this type of crisis , not only in the US but around the world. So, Democrats, please shut up and get to work trying to assist the efforts in this regard. Good place to start is California. Ann deAvila on 2/28/2020 11:42:10 AM |
Having been raised in the Midwest (Ohio), then moved to sunny, "hospitable" California at the age of 16...all was exciting and there seemed to be no end to a future in a state that was on the move in the right direction: business was growing, as was the population for purchasing of goods and services, the air quality was more accommodating than it is today AND of course (at 16) "surf's UP!" But, since those early days, the Dems have taken this state "out of the running," by OVER taxing everything that doesn't move causing both businesses AND a "buying public" to depart like rats from a sinking ship. And, our illustrious new governor, Gavin NUISANCE has been just THAT! Offering FREE health care to EVERYONE, including undocumented (politically correct) aliens, promoting "sanctuary state" status while challenging President Trump by broadcasting his opposition to state & local authorities assisting ICE agents and (not even FINALLY), PROVIDING driver's licenses for ALL who wish to populate our streets (no matter if they know how to navigate today's multi-ton vehicles, or NOT.) As a form of "icing on the cake," the Dems are doing all they CAN to repeal the average taxpayers's final refuge (property tax relief) by urging voters to vote in FAVOR of Proposition 13 on this coming Tuesday's ballot (on the pretense these funds will now be channeled into "better schools and safer communities.") What a CROCK!!! I am about to join many of my fellow high school alum who have departed for greener pastures (Nevada, Oregon, Arizona and the like) disgusted with the current "leadership?" of this once attractive and safe haven. James Warlin on 2/28/2020 1:33:16 PM |
Perfect title Charles. Jim BUchanan on 2/28/2020 2:11:57 PM |
Well, here we are in a market sell off due to a SCARE about the corona virus. The media is really playing this up and the sellers are jumping on board. Add to that the reaction of computerised trading and here we are. Twenty-five to three thousand deaths are currently being reported. I'm sorry for those people and families, but let's remember that in 1920, between 50 and 100 MILLION people died from the influenza outbreak; 20 MILLION in the United States. This cureent epidemic or pandemic, whichever you prefer, isn't even a blip on that chart. So let's take care of the current situation and get ready for the recovery. Remember, the ten years followoing that horrific pandemic was followed by ten years characterised as "Roaring". Vic Demarest on 2/28/2020 4:54:25 PM |
Vic I'm with you there has been honest reporting but a ton of deliberate fear mongering based on Trump. It's not fair to investors but then neither was the doomsday coverage of potential recessions in Dec 2018 and last summer, trade negotiations (even as $360 billion in tariffs were in place and the economy was rocking, potential war with Iran and the never ending talk of Constitutional crisis.
Always focus on the underlying fundamentals. CP Charles Payne on 2/28/2020 5:30:27 PM |
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