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Morning Commentary

Making it To the Apex

By Charles Payne, CEO & Principal Analyst
3/26/2020 9:35 AM

I bet you had a feeling the market would slide into the close, and the rally effort would essentially hold on for dear life.  Well, you are right. The Dow was up 1,200 points. As we turned the corner to the final hour of trading, it began to tick lower. 

Each up day, no matter how large, during this meltdown had been met with a greater selloff in the subsequent session. So it’s a moral victory the Dow and S&P closed in the green, despite being off session highs.

As it turns out, late selling wasn’t just from muscle memory, but the latest shenanigans out of Washington, D.C. where the coronavirus relief bill has sparked a free for all among lawmakers with agendas that have nothing to do with helping the economy.

It appeared everyone got to stuff the bill with their own goodies, but that wasn’t enough, as some wanted to score more political points.  So, late into the session, when it appeared the bill was on its way to passing in the Senate, word came down Bernie Sanders wasn’t happy. 

As it turns out, the bill passed the Senate in the middle of the night.  There is a lot of stuff in there that would normally shock the average American, but these are not normal times.  I do find some of the political agendas to be abhorrent, and the postmortem will allow reflection, maybe even introspection. 

Maybe.

The bill is a survival bill, and the fact of the matter is, we will probably need another bite at the apple. It will take several more weeks to get the coronavirus new case levels trending lower, and folks can go outside, and economic activity smartly comes back on line.

It was important for the Senate to get this passed before this morning’s initial jobless claims.  At 3.28 million initial jobless claims, the numbers are higher than official consensus, but I have to say many folks thought the number would be a lot larger.  Consider, Canada saw 929,000 initial jobless claims for March 16th week, which is equivalent to the United States posting 10,000,000.

Of course, the number is a disaster, but it’s worth noting, equity futures improved after it was posted.

Stock of the Day

Micron (MU) posted financial results last night, including guidance for the current quarter.  The news informs on a lot of fronts and potential investment thesis.

Management sees current quarter revenue $5.2 billion and earnings $0.55 plus or minus $0.15; the street sees $4.88 billion and $0.54.

Changes in life forced management to:

▪ Ongoing communication with our suppliers to ensure continuity and identify supply gaps

▪ Increased our on-hand inventory of raw materials

▪ Increased multi-sourcing of parts to reduce supplier dependence risk

▪ Added assembly and test capacity in order to provide redundant manufacturing

capability

Changes in Outlook and opportunity

▪ Stronger demand from datacenter due to remote-work economy, increased gaming and

e-commerce activity

▪ Datacenter demand in all regions looks strong and is leading to supply shortages

▪ Recent increase in demand for notebooks to support work-from-home and virtual

learning

▪ Smartphone, consumer electronics and auto demand below prior expectations for

2HFY2020

▪ Moving supply from smartphone to datacenter markets, for both DRAM modules and

SSDs

Essentially, investors should have exposure to PC/laptop and enterprise equipment makers, as well as video game, virtual learning and businesses with strong and expanding e-commerce operation.

Cloud is more important than it was even two months ago, especially companies involved in infrastructure. 

Important note: management says China smartphone manufacturing is returning to full operations, but for its global operations, management has shifted resources to meet growing demand in infrastructure.

Guidance

Management noted the need for government stimulus and rapid containment of coronavirus containment efforts. Based on positive actions (I think current response trends are improving), Micron sees improved trajectory of economic activity in the second half of 2020, and the rebound to bring economic momentum into 2021.

This guidance could be applied to many industries and why containment, testing and the race for a vaccine continue to be the largest input into any financial and market modelling.

Portfolio Approach

We’ve put half the cash we had available to work in the model portfolio.

This morning, Federal Reserve Chairman Jerome Powell appeared in the Today show and essentially said the Fed will be there for the nation; although, he resisted the term “blank check.”

Today’s Session

This is calming and adds to a sense of confidence the nation can mitigate the economic damage from a nation that has essentially sheltered in place, even in states where this isn’t mandatory. 

Initial jobless claims also suggest lawmakers should already be working on the next round of help for Main Street.

Right now, major indices are not plummeting, and in fact, are exhibiting some spunk.

There is no way to know how the session will finish, but I think early action is already a moral victory and the kind of resolve we must see before a sustained rebound can be achieved.

Cash is King

This morning the biggest early session winners will all but higher because management is suspending cash dividends or reducing distribution.  Its all about making it through this difficult period.


Comments
TY. Shame on pork.
Local=Execute
State=Manage
Federal=Support
?Where was Local action to prepare?

John HendersonJ on 3/26/2020 11:45:10 AM
Charles, used your pillars approach to create a watchlist of 30 or so companies and was suspicious (lucky?) enough to bail before the big Corona drops. I've been working that list and other stocks that saw huge drops and just cleared the deck up 57% this year. Can't say enough about your book and its guidance!!! My question is, is it now time to go 30-50% into something like VOO, be patient and wait for the 30% or so upside potential that is still there over the remainder of the year?


Ed on 3/26/2020 3:01:05 PM
Hello Ed Thanks for the kind words (I don't mind being lucky, too). I like the idea of buying the S&P here for a portion of someone's portfolio the percentage depends on individual temperament and goals. CP

Charles Payne on 3/26/2020 3:04:39 PM
 

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