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Morning Commentary

WHEN WE STOP SQUEEZING THE CHARMIN

By Charles Payne, CEO & Principal Analyst
3/25/2020 9:21 AM

It was a heck of a day for the stock market, where the Dow Jones Industrial Average (DJIA) enjoyed its largest point gain and fourth-largest percentage gain in history. It was the best session for the Dow Jones Industrial Average since 1933. I spent most of last night replying to emails and phone calls – most were asking the same question: “Is the selling nightmare over?”

My answer: the selloff was so enormous that there is no way to simply bounce straight back. I’m looking for a series of events, including:

Image result for mr whipple charminUltimately, what I’m looking for goes back to my childhood. The iconic Mr. Whipple was the central character in television commercials for Charmin toilet paper. 

The toilet paper was so soft that shoppers couldn’t resist squeezing it whenever they passed it on shelves. And each time, a stark warning was issued:

“Please don’t squeeze the Charmin!”

Invariably, after scolding customers (they always scurried away without the product), he would look around to see if the coast was clear, and he would squeeze the Charmin himself.

The joy he got out of this revealed a borderline fetish, but the commercials were a huge success. The campaign aired 500 versions from 1964 to 1985.

So, I think the ultimate sign that the coast is clear is when Americans no longer need toilet paper like Mr. Whipple. 

Bailout Developments

Last night, Larry Kudlow did the math on the stimulus bill needed to mitigate the impact and alleviate the shutdown of the biggest economy in the world. Choices of quarantines, sheltering in place, and social distancing, means the government and quasi-government institutions must come up with $6.0 trillion. Larry is a good man, but someone should have told him blurting out a number like that invites critics and demands for even more:

Total: $6.0 trillion

Whoa!  We’ve seen headlines on all the stuff the Federal Reserve is doing. However, no one ever did the math, as if it’s unknown how much these facilities will dole out. Now, we must wonder why the heck the financial system needs $4.0 trillion. The banking system is still too opaque, and too big to fail – it has only gotten bigger.

By the way, does anyone remember the parameters of those so-called stress tests?

Ironically, $2.0 trillion for Main Street isn’t going to be enough, and I can guarantee Congress will take another bite at the apple.

Take Your Bailout

Whoa! The CEO of Boeing (BA) has come out swinging. Dave Calhoun isn’t taking any crap from taxpayers with the temerity to expect stock or options as a part of bailing out the beleaguered airplane maker. He says the company has $15.0 trillion in liquidity and should be able to make it through the crisis if it doesn’t linger on for months.

If there are issues, and for any reason the company needs help, then President Trump is already on record saying he would help. Boeing has 150,000 employees and is the nation’s leading exporter. Last week, Boeing tossed out a number the aerospace industry would need, and it’s a long way from no help at all. My gut tells me the company will get $60.0 billion for the industry.

Boeing shares were up 21% yesterday - and indicated it went up 8% more after the close.

Nike Swoosh

After the close, shares of Nike (NKE) leaped more than 10%, as revenue climbed 5%. The operating margin edged to 32.5, and earnings per share (EPS) came in at $0.53. China held up better than expected as global sales popped:

The Message of the Market

The last shall be first and the first last.

The worst-performing sectors enjoyed outsized gains yesterday.

S&P 500 Index

+9.38%

Communication Services (XLC)

+6.15%

Consumer Discretionary (XLY)

+9.38%

Consumer Staples (XLP)

+5.10%

Energy (XLE)

+16.04%

Financials (XLF)

+12.40%

Health Care (XLV)

+7.71%

Industrials (XLI)

+12.65%

Materials (XLB)

+11.76%

Real Estate (XLRE)

+8.72%

Technology (XLK)

+10.24%

Utilities (XLU)

+10.75%

 

No, it wasn’t your imagination. The worst-performing stocks in the downturn were the biggest winners yesterday. Many of the names considered coronavirus winners saw big-time selling like Zoom Video (ZM) -14%, which is why I sent an alert to take profits in the model portfolio Monday before the close.  The stock is still up 100%, and if it lives up to the hype over time, it could go a lot higher.

Data from Bespoke Research (BSPK) called yesterday’s buying, a “Dash for Trash.” It shows just how bizarre the session was as the 10% worst names since February 21 were up an average of 18.1%. I call the action “Dogs Barking,” and I don’t think this is a bad thing. There is no doubt that individual investors made a lot of money yesterday. I have no problem with that, but just be nimble.

Portfolio Approach

Yesterday, we added two new positions, one in Communications and one in Technology.  We are changing Communications to a 3 weight and Technology to a 4 weight and reducing our Cash to 3 or 15%.

Today’s Session

As I mentioned earlier, yesterday’s session was one for the record books, especially for the Dow Jones Industrial Average, which posted its best point gain and fourth best percentage gain. 

Here’s the thing, all the other record percentage gain sessions were stretched across the Great Depression.  But the good news is three of those sessions were after the bottom was put in on July 8, 1932, when the Dow closed at 41.22 down 90% from 1929 crash.

Biggest Point Gain

Biggest Percentage Gain

March 24, 2020

+2,113

March 25, 1933

+15.34%

March 13, 2020

+1,985

October 6, 1932

+14.87%

March 2, 2020

+1,293

October 30, 1929

+12.34%

March 4, 2020

+1,173

March 24, 2020

+11.37%

March 10, 2020

+1,167

September 21, 1932

+11.36%

The Stimulus Package

The package is reported to be close to $2.0 trillion, but there remains a lot of questions. 

Key highlights:

The market is still not sure how to react.  The trend has been big sessions, followed by disasters. By the same token, there is a general sense stocks are oversold, even with big questions about earnings in the near term.  Bears and other forces pressuring the market will work overtime to snuff out any hope that would emerge from back to back up days.  So, today could be a real tug of war.


Comments
Love the the Mr. Whippel analogy, but remember today is Wednesday and it's Prince Spaghetti Day (remember that one ANTHONY ANTHONY) If you bring this up on air remind Tony from the Block lol

christopher voccola on 3/25/2020 9:34:10 AM
Love reading everything you put down. My simple knowledge of a low point like this is. "non-efficient & badly managed companies will fail in this pandemic economic crisis but new,efficient and well managed companies will emerge and make our economy stronger than before. Thoughts?

Jerry Eversole on 3/25/2020 10:58:28 AM
My God-given sense tells me that from what we now see that the Corona Virus is not even as severe as the Flu Virus that hits us every year and since we don't shut down the country for it, we should get America back to work. Then just like the Flu, if you have symptoms, isolate till you're over it. As it is now, the Government is trying to resolve a crisis it created by "Rescuing tax-payers" with the money that's ours anyway by making a 6 trillion dollar mistake (and skimming more Congressional slush-fund money off the top in the process). Throw the bums out and get us back to work. Capitalism, NOT Communism!

Byard Grim on 3/25/2020 10:59:30 AM
What about the seniors... social security and the vets... the $200 a month for them did not pass.
If they received it.... they would put it back into the economy... because they need food and medicine. Good luck you devils in Washington.

Joseph on 3/29/2020 5:02:35 PM
 

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