I was out of pocket much of last week dealing with a family emergency that is ongoing but improving. It was another reminder not just of life’s fragility, but of living. Living has become more difficult for many when it comes to their financial circumstances, and it’s difficult when it comes to prospects for the future. The most important financial barometer of the COVID-19 crisis is the weekly update on the Initial Jobless Claims. 

Last week, the number was once again higher than the consensus (why and how anyone could offer a guess to be added to a consensus is beyond me). Once again, it was a sequential decline, tracking back to the peak on March 29^th.  Unlike prior Thursday sessions, which saw the market rally despite the harsh reality of mounting joblessness, the market pulled back.

With the six-week tally of more than 30,000,000 Americans seeking benefits, it’s clear the domino effect of shutting down parts of the economy has not spared even industries and locations that remain open or in full operation. Meanwhile, less than half of the states had comments for the report; mostly, they noted fewer layoffs in retail, food service, manufacturing, construction, and accommodation industries.

This is not a sign that things got better. It’s just a sign that the ‘well’ of folks to lay off is running dry.

Initial Jobless Claims

Staying Alive

The focus on saving lives is obvious, but the focus on the quality of life seems lost on many politicians. There are loud rumblings across the nation that can no longer be ignored.  People need optimism, hope, purpose, and even the ability to take measured risks for the betterment of themselves and their families.  Those are all the components of staying alive.

Just think if you posed the question: Is getting a haircut worth the risk of catching the coronavirus?

The answer would be a resounding “no,” and yet, you have seen images of folks around the world rejoicing on getting haircuts, despite the fact, there is no vaccine or cure for the coronavirus. Maybe, you went outside for a haircut, a run, or a bicycle ride.

The Glass is Now ‘Half Full’

According to Gallup, the percentage of Americans saying the coronavirus is getting worse is down to 38% from 56% in early April. And a plurality of them says that conditions are improving:

• 41% Improving
• 38% Getting worse
• 21% Stable

Nonetheless, everyone has been impacted by varying degrees of disruptions brought on by the continual spread of the coronavirus. However, there has been a marked improvement in recent weeks from those saying that the brave new world has caused a great deal of disruptions. And then there is the 1%.

Only 1% Say Their Lives Have Not Been Disrupted at All

To what extent has your own life been affected or disrupted by the coronavirus situation?

Week	A great deal	A fair amount	Not much	Not at all
	%	%	%	%
Mar 13-15	18	37	36	8
Mar 16-22	32	43	22	3
Mar 23-29	33	45	21	2
Mar 30-Apr 5	35	45	18	2
Apr 6-12	34	46	18	2
Apr 13-19	29	46	23	2
Apr 20-26	27	45	26	1

Gallup       

Failure to Launch

Remember my key resistance numbers coming into the week (below)). The work is handy, but the thing about breakouts is that it’s generally a process, not a single day event. Not only do resistance numbers have to be shattered, but they also must hold as support. The market was on the cusp of taking off when it got spooked by several developments and events.

Break Out Points	Initial Resistance	Major Breakout
S&P 500	2,882	3,130
Dow Jones Industrial Average	23,876	24,242
NASDAQ Composite	8,650	9,018

With market bias shifting late in the week, it’s also time to revisit key support points.

Key Support Points	Initial test	Critical Support
S&P 500	2,659	2,460
Dow Jones Industrial Average	22,653	20735
NASDAQ Composite	8,494	8,260

Growth Stocks Struggle

All it took was one tweet from Tesla’s CEO Elon Musk to take the wind out of those growth names that have been impervious to any serious bumps in the road, or general market challenges. Musk gave the ‘shorts’ a gift but hurt investors’ who are long classic momentum names. I’ll be a buyer of Tesla (TSLA) at some point.

Elon Musk @elonmusk

Tesla stock price is too high imo

Too Much Power?

Last week, I pointed out the overwhelming influence of those five momentum names, all born out of the Technology revolution but covering more aspects of our daily lives. It seems like everyone jumped on the bandwagon, debating whether it is a good or bad thing – the general feeling is it’s a bad thing based on the last time this happened.

1977

• GM • IBM •    GE • T • XOM

While it’s no doubt the big five of 1977 are great companies, they have struggled of late, with share price performance to match those names that generated fortunes for investors from 1977 to 2000. 

I must reiterate that the market needs a greater breadth of winners, including boring stocks in companies that are not selling disinfectants. By no means would I be a seller of momentum names as a long-term investor.

Sure, like any stock, they get stretched from time to time, and maybe a tweet from an eccentric CEO reminds the market.

Dry Powder

Americans retreating to the safety of their homes in March took an even greater toll on the economy than expected (there we go with the consensus numbers again -although March should have been easier to figure).

• Personal Income: -2.0%
• Personal Spending: -7.5%
• Personal Savings Rate: 13.1%

Wall street was looking for a 5% decline in spending, but the bigger number (-7.3% adjusted for inflation) resulted in savings climbing to $2.17 trillion. 

American Savings Rate

At some point, a big chunk of that money should find its way back into the coffers of Main Street, although the big debate is how long it will take. Moreover, Americans began saving more before the word coronavirus became ubiquitous to society, which means folks were naturally self-regulating spending or bracing for turmoil. Or both.

Universal Basic Opportunities

In any event, income protection and assistance from the Federal government have been essential. These efforts must be maintained until much of society is opened, and Americans can fend for themselves.  This should not be equated with Universal Basic Income (UBI), a scheme that gives people the option of chilling out during good economic times.

That sort of plan is not good for the individual or societies, and it has never worked in its purest form.

The universal basic opportunity is what made the nation great, and what makes the world go around.  Profit-based solutions are why we have significantly longer life expectancies than several generations back, and why there are 122 COVID-19 vaccines in development. When there is good news on that front, the entire stock market gets a boost - and when there are disappointing developments, the overall market slumps.

The Great Race

The March consumer spending decline was the biggest in the history of the series, which goes back to 1959, and joined a parade of economic data that was the worst ever on record:

• Retail sales decline
• Durable goods decline
• Industrial production decline

There are move data points that could be added (you get the gist). Here’s the rub. These are March numbers. March began as a strong quarter that carried the momentum from January and February.  Lock downs and stay-at-home orders were just trickling across the nation in mid to late March. With that in mind, it stands to reason data points for April will be significantly worse.

Tug-of-War

The thing is that investors already knew the economic data for April will be an unmitigated disaster with numbers that will boggle the mind and break your heart. Therefore, there has been so much intervention from the government and Federal Reserve, and even that is not enough to stop a crash landing. The best-case scenario for Main Street is something less than the worst-case, but nothing near a soft landing.

For Wall Street, the battle is between bracing for the worst and looking for hope.

That hope can only come from more states opening their economies, evolving & decisive game plans from the business world, and optimism about a vaccine and treatment. The role of the media has to be tempered as well. The stock market has taken many dings and endured many swoons and air pockets over false reporting about the administration and bad guessing on economic outcomes.

Oops, They Did it Again

On Friday, there was a report (based on anonymous sources) that the Trump administration was pondering or preparing to cancel some or all interest payments due on U.S. Treasury bonds held by China. The biggest media outlets are pushing this idea of opening the economies, and they hate President Trump and are being reckless. 

The speculation rattled the stock market, but was later denied by Trump who said: “You start playing those games (debt cancellation), and that’s tough…We want to protect the sanctity of the dollar…”

Larry Kudlow went on the record, saying the notion was “absolutely and unequivocally untrue.”

The bottom line is your word is your bond, and not paying China’s interest due to one trillion in U.S. debt holding would be the biggest gift America could give to China and other nations that dream of the U.S. dollar losing its preeminence and the world seeking comfort from different nations.

I just can’t believe how vigorously this kind of stuff is reported.

Meanwhile, there is pressure inside the administration to make China pay some price for its mishandling of the coronavirus, which could have dramatically mitigated the human and economic toll the world has suffered. There is even talk about additional tariffs, which I think is a bad idea at this moment in time.

The Great Oracle Did See Everything

Warren Buffett held his annual Berkshire Hathaway (BRK) gathering over the Internet and revealed that while a legend, he is still only human.

The highlights of the report include:

Admitting he was wrong on airlines and reporting he bailed on his entire $6.0 billion positions in American, Delta, Southwest, and United Airlines.

• His conclusion is there are too many planes for the upcoming weaker demand in the next two to three years
• His company lost $50 billion in the first quarter
• He is not buying yet, saying “we haven’t seen anything attractive”

Not “Buffett” Attractive

Much has been made of the fact that Warren Buffett has swooped into the market to take advantage of the sell-off. The bears say it’s evidence that the market is going to go much lower, but I think there is more to the story than that assumption.

Buffett spent much of his presentation giving kudos and showering accolades on the Federal Reserve, which is in the process of pumping trillions of dollars into the financial system. This has allowed for record corporate bond borrowing and credit facility engagements.

• $1.1 trillion bonds for March & April
• $250 billion in revolving credit

This kind of liquidity makes it much harder for Buffett to extract the terms he got during the Great Recession when he “came to the rescue” of Goldman Sachs (GS), Bank of America (BAC), and General Electric (GE), to name a few. Despite his concerns about too many planes, I bet if Boeing (BA) came to Buffett hat in hand, willing to accept Draconian terms, the Oracle would pounce.

I am a Buffett fan, but he is no J.P. Morgan (JPM), who rolled up his sleeves and saved the U.S. economy back in the day, in part with his own money, and united other big funders. Perhaps it was not pure altruism, knowing his businesses would thrive under a healthier economy, but he did not demand a king’s ransom either.

I only read about the video conference, which also included a history lesson going back to the Civil War, the Spanish Flu, and the Great Depression.

Two slides that stood out:

“Never bet against America”

“But never – never- bet against America”

I agree with those sentiments exactly. I think market experts have done so during this crisis and will continue to do so, as they pound the table for a pullback that tests the bottom or goes lower. I have said this doesn’t have to happen. This hasn’t always happened, so make sure not to be a pawn in their game.

Watch List

I missed most of the day-to-day action in the market last week. Usually, I try to watch each tick of the day and pride myself on taking few days off (or not going on vacations for a decade). Looking at the macro picture, there was clear rotation from safe havens, such as Utilities, Staples, and Health Care, which were already down for the week before entering Friday’s session.

S&P Sector Performance	May 1	5 Days
XLC (Communications)	-1.45%	+1.83%
XLY (Discretionary)	-3.72%	+0.01%
XLP (Staples)	-1.10%	-1.86%
XLE (Energy)	-5.66%	+3.55%
XLV (Health Care)	-1.91%	-2.45%
XLI (Industrials)	-3.02%	+1.14%
XLB (Materials)	-2.10%	+1.87%
XLRE (Real Estate)	-3.07%	-0.60%
XLK (Technology)	-2.75%	+0.30%
XLU (Utilities)	-2.41%	-4.18%

I like the action in Materials, especially packaging names. I’m warming up to non-bank financial stocks. We had a huge week with Discover Financial Services (DFS), but I think Consumer Discretionary winners -those that take market share and should survive this test- will be huge winners for the near term and long term. I also love the action in homebuilders.

I like many names in the Industrial space, and I agree with the market in the sense that Utilities are too expensive, and Health Care has peaked for the moment.

I get asked about Energy a lot. It’s a tough sector to be ‘long’ with so many unknowns and the wild futures market. I think investors should have these names on their watch list, even though I want to see how the current contract expires, and developments on government intervention as bankruptcies begin to mount:

• (XOM) ExxonMobil
• (CVX) Chevron
• (FANG) Diamondback Energy
• (APA) Apache
• (PSX) Phillips 66
• (PXD) Pioneer Natural Resources

Human Determination

Last week, Hafthor Bjornsson established a new record for deadlifting 1,104 pounds. A remarkable feat -that one day will be eclipsed because that is what we do as a human being – going on an endeavor to get better and overcome odds to make the most out of life. 

In this report, I mentioned Elon Musk and how his comments sent his stock and Technology names lower on the session.  His comments were part of a string of tweets that focused on individual freedoms and demands to lift restrictions of human movement. He is not alone in making such demands. At this stage of the coronavirus fight, it’s one way to fight back and regain our lives.

I also mentioned Warren Buffett was only human when he made the mistake of such a large investment into airline stocks, but that was not a diss on human beings. Making mistakes is exactly how we get better. Every investor knows this, and every parent tries or should try to teach their children this lesson no matter what age they are.

Inner Strength

I used to deadlift 550 pounds in my 40s, and I thought I was strong, but our greatest strength always comes from within.

I had an exceedingly difficult week as a member of my family is in an emergency state, and I’m trying to help. I have gone through similar situations, including the race to find my wife a heart when she had days, maybe hours to live. An ‘angel’ saved the day back then. And I pray with love and support, a dollop of divine intervention will help this time as well - nothing beats the power of prayer.

We are all going through exceedingly difficult times, and we will make it through this. We will!

I will be out of the loop for a few days. My team did a great job last week, so you are in good hands. I plan to be back in the saddle very soon. 

Portfolio Approach

Today’s Session

The futures are pointing to a lower open across the board.  

 

Comments

I agree with your commentary. America and Americans are built to work and this we must do to get back on stride Common Sense and good practices with the williingness to succeed will get us out of this mess and back to business. I have added you and your family to our prayer list God bless you James Cuff on 5/4/2020 9:55:06 AM

Charles, you and your family are in the prayers of untold numbers around the world. It is especially in crisis, that we learn that their is One stronger than we! We can rely on Him for solution, comfort and peace. God be with you. George Debnam on 5/4/2020 10:03:10 AM

Charles, God bless you for all you do and the example you set. I pray for you and your family during your current difficulty. Jim J on 5/4/2020 10:05:23 AM

God Bless You, Charles! Michael Bacik on 5/4/2020 10:08:48 AM

This house is praying for you and those in your family. Amyjo on 5/4/2020 10:22:31 AM

My thoughts and prayers are with you Charles! Dave Daubard on 5/4/2020 10:27:48 AM

Prayers on the way to you and your family. Steve B on 5/4/2020 10:28:23 AM

Thinking of you and your family, Charles, and praying for a good outcome. God bless. George Elliott on 5/4/2020 10:30:12 AM

Thanks Charles. Prayers for you and your family! Jason on 5/4/2020 10:36:21 AM

Thank you for you positive attitude even during these difficult times. Your life story should be an inspiration to everyone. God Bless you, your family, your team, and America. El Zorro Oro on 5/4/2020 10:50:28 AM

Charles, you and your family are in our prayers everyday. Keep up your good work helping all us untrained investors. William Brown on 5/4/2020 11:05:47 AM

In prayer for you Charles and your family..."Greater is HE that is in you than he that is in the world" And thank you for taking the time to expound on what is happening with the market. Blessings, Lisa Lisa on 5/4/2020 11:08:59 AM

Good morning Charles, You are a blessing to the readers of your newsletter and to those who watch you on FOX Business. Thank you for your search for and perseverance for the truth in life and in investments. I too will be praying for you and your family health issues. Relying on our Lord and communication with Him is our hope and strength for he is our refuge, comforter, and source for all that is good. You asked the question of how has the virus issue affected you. For me, I have loved and enjoyed the change in living it has produced. Things like more free time to complete projects, so very much less traffic, the feeling that everyday is a Saturday, all days feeling free and less restrictive and dutiful. I take great peace in the promises of scripture that for the believer in the Lord Jesus Christ, one who loves Him and obeys his commandments, that it is appointed once for man to die. To me that means if rocket man sends a missile our way or the virus goes bisserk, my appointment time to pass on will not be affected or changed for it is cast in more than concrete. So, using common sense to live, the length of my days is not in my hands but in my Creator's plans established before the creation of the world. Secondly, God says, He will not give His believers more than they can bear, that He will be with them and not forsake them. Understanding these two promises has wiped away all over concern about the virus, the economy, financial issues. It is truth that gives peace and contentment. It feeds the soul which is who we are and is what lives either in an eternity in hell or in eternal bliss in heaven with our Savior. These truths will offend some as truth always does. Jesus offended many, truth offends many. So what. The Bible well points out that there are (2) kinds of people in the world. Fools and the Wise. The fools are those who turn their backs on God and go their own way which leads to hell. The wise are the ones who know and love and obey our Lord. I pray that God will continue to bless and protect you and your family knowing that all of life's trials are our Creator's way of refining and increasing our faith in Him to make us more like Jesus Christ. For He says that our faith is more precious to Him than gold and silver. Best Regards, Bill Baumner Bill Baumner on 5/4/2020 11:56:04 AM

Charles, you and your family are in my thoughts and I'm asking the Universe that all turns out well. You have an amazing spirit - as I see from watching you daily - and know that your faith will keep you strong. Stay safe and positive. Lucky Lucky on 5/4/2020 12:26:02 PM

CVP you nailed it with this & the do nuttins in DC NEED to understand what you said. The focus on saving lives is obvious, but the focus on the quality of life seems lost on many politicians. There are loud rumblings across the nation that can no longer be ignored. People need optimism, hope, purpose, and even the ability to take measured risks for the betterment of themselves and their families. Those are all the components of staying alive. Thank You, Charles & please take care of yourself & your family fred wiese on 5/4/2020 1:31:28 PM

Prayers and God's blessing to you and your family during this difficult time. Christopher Conrad Nystrom on 5/4/2020 3:32:32 PM

Dear Charles, Your strength of character, your wit and wisdom, your faith in God and your simple humanity have been beacons of inspiration to us for many years....and, oh yes...your great market insights! But that last beacon could never be bright enough to determine how much you mean to all your clients and viewers. We send you our heartfelt wishes for your dark days to be lifted and that you and your family remain safe and blessed in the strongest arms of Our Lord and Saviour. Don and Juanita Ponce on 5/4/2020 3:53:43 PM

Trust in the Lord with all your heart and He will lead you in the way you should go Charles. Your answers are on things above, not below my friend. Stay strong. George Poleman III on 5/4/2020 6:37:45 PM

Prayers for you Charles and all of your family. May he give you strength and comfort. Steve Grubor on 5/4/2020 7:37:43 PM

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