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Morning Commentary

Wait Until Irrational Exuberance Really Kicks In!

By Charles Payne, CEO & Principal Analyst
5/11/2020 9:12 AM

April was one of the best months ever for the stock market and last week picked up on that momentum.  But the naysayers and purveyors of doom (a cast of characters that actually includes a lot of folks you send your money to be managed) have had all weekend, and this morning, to talk some sense into the market and presumably individual investors.

Here’s the thing, while there have obviously been more buyers than sellers of stocks, money continues to pour into money market accounts.

Gobs of Money on Sidelines

These accounts pay nothing, but they also lose nothing, and are just one step away from going into equity funds. Although in recent history, US investors have been more likely to move money into international funds before domestic.

Right now, there is a record amount of cash on the sidelines in those money market funds.  In fact, according to Crane Data Money Fund Intelligence, on April 27, there was over $5,000,000,000,000 sitting in money funds for the first time ever. 

According to ICI, the current tally is $4.77 trillion, which is almost one trillion more dollars on the sidelines than during the throughs of the 2008-2009 market crash. 

As for fund flows, investors were dumping equity finds and buying taxable bond funds last week.  

Fund Flows



April 8

+$8.1 billion

-$3.4 billion

April 15

+5.0 billion

+$10.3 billion

April 22

+$1.9 billion

+$5.3 billion

April 29

-$7.0 billion

+4.0 billion

May 6

-$15.6 billion

+11.9 billion

The bottom line is there is no overarching irrational exuberance from individual investors, just more buyers after a tidal wave of panic selling.

A Shift in Fund Flows Could Power Monster Move

For major indices to clear big hurdles ahead, more money has to go into domestic equity funds and ETFs as well as through individual accounts into individual stocks.  That breakout for the Dow Jones Industrial Average begins at 24,633 through 24,771. Beyond there, we see pockets of resistance, but the chart suggests 27,000 would be in play. 

I know its hard to believe…it was hard for me to type but look at this chart.

Again, it’s not going to be easy for a lot of reasons, including forces determined to push the market lower.  This is why I’ve adjusted the approach on the Hotline, and while I’m still aiming for solid double-digit gains in the model portfolio.  I’m taking profits a lot faster than I would under normal circumstances.

Reopening Jitters It’s the big question market for the week as more governments around the world attempt to reopen.

In the UK, Boris Johnson is being raked over the coals for telling workers that cannot work from home to go back to work.  It is a privilege to be able to work from home.  Of course, there are details to be worked out with any attempt to restart economics, as there is no perfect blueprint.  But economic collapse can no longer be the only option.

Portfolio Approach

Today’s Session

Equity futures started the day much higher and are now at lows of the morning. I read a headline that the market is worried about a second wave.  I do not think that is what’s happening at the moment, as news of a small cluster in Wuhan was out when the Dow was +185 and S&P +19.

I do think the market needs to pullback and continue typical price discovery, which means ebbs and flows and back and fills.

This isn’t to say the latest bear narrative will not impact the market. It was a given since talk of reopening the economy began a month ago, that renewed spikes could be an issue.  In addition, there continues to be hope for vaccine and antibody tests as well as an eventual treatment. 

With earnings season in the final stretch, and the biggest economic data of the month already released, this market will be influenced even more by sentiment revolving around getting the wheels of commerce moving again.  The folks already deeming it a failure have the tallest soapbox and control much of the media.


Geoffrey Steer on 5/11/2020 9:31:16 AM
Do you think the Dow will plummet when the 2nd quarter earnings come out? Undoubtedly most companies will show losses in the 2nd quarter compared to last year.

Scott Havsy on 5/11/2020 9:43:08 AM
I think 2Q disasters are expected it's going to be all about the call... Wall Street will need  More visibility (even if guidance is low) More positive outlook for 2021 Greater assurance the quarter will be the nadir for the year and perhaps a lifetime

Charles Payne on 5/11/2020 9:49:15 AM
My biggest issue is all the companies pulling guidance. I understand the suspension or reduction of Dividends.
Certainly top line revenue growth will be very difficult until society is fully open and consumer confidence in jobs, spending and travel are achieved.
It seems all the experts are ac ting like Democrats and Republicans; choosing a side and preaching the gospel of their dogma.

garro on 5/11/2020 12:20:35 PM
Thanks Charles "nadir" in context understood, but I still grabbed the old American Heritage DICTIONARY ----1978 volume. Very explanatory word not on the tip of many tongues.

John on 5/11/2020 4:31:01 PM

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