The big rally effort saw a natural pullback and now the market feels like it is consolidation phase, but this will not last long. 

Major indices are forming ascending triangle formations, which connect recent tops (resistance) over a period with a series of higher lows.  These formations are normally short-term from one to three months and often presage major breakouts.

For the S&P 500, big resistance begins at 3,000 to 3,100.  Beyond there, we could see panic buying spark a fast leg higher.  Conversely, 2,800 has become an important support point that must hold or the technical narrative changes dramatically.

S&P 500

Optimism and Hope

Yesterday, Bloomberg News let down its guard and posted a headline that was actually encouraging. That did not last long as the headline was quickly changed.

1^st headline: Stocks and Oil Rise on Optimism over Lockdown Easing

2^nd headline: Stocks and Oil Rise on Hope over Lockdown Easing

Some are saying there is a distinct difference between optimism and hope, as the former is usually accompanied with improving data or evidence, and the other is simply a feeling.  I disagree when it comes to the economy and stock market.  Optimism often comes before there is evidence of a turn because the personification of optimism becomes the evidence others are seeking.  More broadly, I think the nation has been built on a perpetual state of hope.  

Portfolio Approach

The Portfolio Approach is a guide to the Hotline service and is designed to reflect current portfolio allocations.  It is also designed to help mitigate the risk of subscribers, especially new ones, from buying legacy positions at entry prices that are too high or when the underlying value proposition is changing or in question. Hence, the use of Bold and Unbold positions. The weights are where we want to be sector wise at a particular time. For instance, we are currently overweight in Consumer Discretionary.  If we don't have Bold ideas to match the total weight in a sector, it means we are searching for ideas (there are also names in the cue as our watch and buy list are long and updated daily).

This morning, we are rebalancing our Portfolio Approach and are lowering Consumer Staples to a 1 weight from 3 and raising Cash to a 2 weight, or 10%, and are closing several positions and making bolding changes.

If you are not a current subscriber to our Hotline, please contact your account representative or email research@wstreet.com

Today’s Session

The ADP Employment report for April showed a net loss of 20.236 million non-farm payroll jobs.  March was revised downward from -27,000 to -149,000. Ahu Yildirmaz, co-head of the ADP Research Institute, stated, “Job losses of this scale are unprecedented.” While beyond horrific, we knew the numbers would be unbelievably high as states were shuttered.  He added, “The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession.” 

The services industry was the hardest hit with a loss of 16,007,000 jobs, and of that, Leisure and Hospitality suffered the greatest losses as bars and restaurants closed.  On the good producing jobs, construction lost the most jobs. 

Good Producing	Service Producing
Mining -78,000	Trade, Tran & Utility -3,440,000
Construction -2,477,000	Information -309,000
Manufacturing -1,674,000	Financial Activities -216,000
	Professional & Business -1,167,000
	Education & Health -971,000
	Leisure & Hospitality -8,607,000
	Other -1,298,000

Big businesses also were the hardest hit.

Business Size	Change
Small 1-49 Employees	-6,005,000
Midsize 50-499 Employees	-5,269,000
Large 500 or more Employees	-8,963,000

There was some good news on the housing front, as mortgage application ticked up 0.1% for the week ending May 1, coming back from the prior weeks decline of 3.3%. The average 30-year fixed mortgage rate declined to 3.40%, a record low. 

The numbers appear to indicate what I have been saying. I am convinced older millennials with the wherewithal will look to move to the suburbs as an alternative to living in apartments and condos, stacked on top of each other.

• Purchase Applications +5.8%
• Refinance Applications -1.7%

Mike Fratantoni, MBA's Senior Vice President and Chief Economist, stated, "Purchase volume increased for the third week in a row, led by strong growth in Arizona, Texas and California. Although purchase activity remains almost 19 percent below year-ago levels, this annualized deficit has decreased as more states reopen amidst the apparent, pent-up demand for homebuying." 

Take a look at 3 states hard hit by coronavirus and the impact it has had on home purchases.

 

 

Comments

Hope is generated by faith that you believe something can be achieved ,therefore, you can perceive it happening and therefore hope in its eventual coming to pass. Americans believe this crisis will pass and then we will continue our rise upwards. James Cuff on 5/6/2020 10:26:20 AM

I agree with your statement, except I believe ppl use “hope” when they don’t feel they can make a difference or when the outcome is out of their control. Optimism is a term used when ppl feel positive about the future based on the past or current evidence of a positive outcome, and when they chose to push aside negativity and focus on the positive. Thanks Terry Hutton on 5/6/2020 10:48:48 AM

I believe the nation has been built on optimism and hard work, not simply hope. People have not immigrated to the US based on hope for a better future. They are willing to sacrifice and work hard to build a better life. Hope has nothing to do with success. Success is achieved through action. Hope itself accomplished nothing. Robert Roach on 5/6/2020 10:59:30 AM

The market has been a leading indicator of future earning. So it makes sense, optimism comes before. Leelee Doughty on 5/6/2020 1:54:53 PM

Hey Mate, I'm going to back into this, 1st Attitude to me is the most important part of our personality, if you have a positive Attitude, you are by nature an optimistic person, in everything you do, hope is in your vocabulary but hardly ever used, the problem today as I see it is people concentrate on what they don't like and don't want instead of what they do like and do want, when you concentrate on the negative Hope is the only thing you have mate. Bryan Nagle on 5/6/2020 2:21:42 PM

Belief is the most important element to a successful outcome, in my view. Belief creates true optimism and real hope. Patricia Flynn on 5/6/2020 7:23:29 PM

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