The market took a pretty good drubbing yesterday after Fed Chairman Jay Powell suggested there is more work to be done on the stimulus front. Ironically, this kind of comment used to move markets higher. But the grim reality of the situation (even with more help on the way) is sobering. I took parts of his presentation to be more important for the stock market.
There were additional comments about the poor getting hit the hardest; however, I will write more about this in Payne’s Perspective this weekend.
Chair Jerome H. Powell
At the Peterson Institute for International Economics, Washington, D.C. (via webcast)
The coronavirus has left a devastating human and economic toll in its wake as it has spread around the globe. This is a worldwide public health crisis, and health-care workers have been the first responders, showing courage and determination and earning our lasting gratitude. So have the legions of other essential workers who put themselves at risk every day on our behalf.
The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased. Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs.
…Today I will briefly discuss the measures taken so far to offset the economic effects of the virus, and the path ahead…
To date, Congress has provided roughly $2.9 trillion in fiscal support for households, businesses, health-care providers, and state and local governments—about 14 percent of gross domestic product. While the coronavirus economic shock appears to be the largest on record, the fiscal response has also been the fastest and largest response for any postwar downturn.
…At the Fed, we have also acted with unprecedented speed and force. After rapidly cutting the federal funds rate to close to zero, we took a wide array of additional measures to facilitate the flow of credit in the economy, which can be grouped into four areas…
The Fed takes actions such as these only in extraordinary circumstances, like those we face today. For example, our authority to extend credit directly to private nonfinancial businesses and state and local governments exists only in "unusual and exigent circumstances" and with the consent of the Secretary of the Treasury. When this crisis is behind us, we will put these emergency tools away.
…While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks…
…We ought to do what we can to avoid these outcomes, and that may require additional policy measures. At the Fed, we will continue to use our tools to their fullest until the crisis has passed, and the economic recovery is well under way…
It’s like the delayed reaction that happens at the end of the Federal Open Market Committee (FOMC) gatherings. When the market makes a sharp move during the last two hours of trading in one direction, only to go the opposite direction in the next session, there is a chance we could see a shift in focus back to the Federal Reserve and its magic toolbox in today’s session.
I think that is why late buying materialized the last thirty minutes of trading.
The session will also get a boost from the Wisconsin Supreme Court, which ruled against the state’s governor and his attempt to unilaterally extend stay-at-home orders without a legislative vote.
After the close, Mastercard (MA) updated its second-quarter 2020 (Q2) operating metrics, which sees volumes clearly improving over the last two weeks. Although it’s still down year-over-year, the company says spending is transitioning from stabilization to noralization in some markets, as restrictions relax, and consumers re-engage using social distancing and mobility limitations.
Cross-border transactions remain depressed, down more than 40%, although there has been a noticeable improvement in card usage without the counter being present (sans travel).
Yesterday, we took profits on 3 positions in our Hotline model portfolio in Consumer Staples, Health Care, and Technology. Today, we are lowering Consumer Discretionary to a 4 from 5. For both Consumer Discretionary and Industrial, the weights are where we think an ideal portfolio should be, even if we do not always have a stock we are pounding the table on (meaning Bold) at the very moment. We are raising Cash to 3 or 15% and looking not only for new ideas, but to reiterate something that is already in the model portfolio.
Last week, 2,981,000 workers filed for initial claims, down 195,000 from the prior weeks revised 3,176,000 from 3,169,000 million. A better gauge, the 4-week moving average decreased by 564,000 to 3,616,500 from the previous week’s average of 4,180,500 from 4,173,500.
The advance seasonally adjusted insured unemployment rate increased 0.3% for the week ending May 2, to 15.7%, to 22,833,000, an increase of 456,000 from the previous week's revised level, which was revised down by 270,000 to 22,377,000. The 4-week moving average was 19,760,000, an increase of 2,729,750, from the prior week's revised of 17,030,250.
In the last two months, there has been about 36.5 million total applications.
The largest increases in initial claims were in Oklahoma (+41,385), Maryland (+25,318), New Jersey (+16,360), Maine (+8,452), and Puerto Rico (+4,600). States that have started to reopen, which had the largest decreases in Florida (-258,243), Alabama (-45,981), Georgia (-38,213), Washington (-37,289), and Pennsylvania (-33,451).
The major indices are all in the red this morning as worries have crept back into the market.
Jeff on 5/14/2020 9:57:22 AM
|Yes, being back the uptick rule. Stop HFT after 1% Delta in a day|
Babagary on 5/14/2020 10:01:12 AM
|Indeed! Make that change with jail time. Close down GS too.|
Mark Schwab on 5/14/2020 10:05:34 AM
|HFT certainly poses problems for retail investors. It is obviously not practical for me to pay for co-located servers and sub-millisecond transactions. However, the Libertarian in me doesn’t like imposed restrictions on innovation. Perhaps exchanges that won’t allow HFT, but that means they will be left out of most of the volume; it is perplexing...|
Jeff Oliver on 5/14/2020 10:19:57 AM
|I fully support Charles Payne's suggested changes.|
MARTIN WEBER on 5/14/2020 10:21:23 AM
|I agree with the stance of curbing the HFT.....those games need to end at the expense of the American people|
Sean Jeffrey on 5/14/2020 10:22:26 AM
Trump 2020 👍🏻💪
Danny Velarde on 5/14/2020 10:30:19 AM
|Thanks Charles for trying to make sense of these very confusing times. My prayers are for the first responders and those suffering due to a lack of normal income.|
Austin Scudieri on 5/14/2020 10:31:00 AM
|I agree with curbing HFT|
Mark O'Shea on 5/14/2020 10:33:47 AM
|I totally agree Charles. It needs to be changed or most of us Americans will not trust the stock market and take our money out|
Cheri on 5/14/2020 10:38:08 AM
|I really appreciate receiving your market briefs. Keep sending them.|
Ron Reso on 5/14/2020 11:03:25 AM
|I totally agree that HFT and other exotic instruments should be curtailed immediately if there is to ever be any confidence in investing again. The current situation from Wall Street and big fianancial entities is akin to playing poker when your opponent has 2 Aces up their sleeve.|
Garro on 5/14/2020 11:03:58 AM
|I think for the average investors and the confidence in the markets, the HFT should be curbed.|
Terry Buchanan on 5/14/2020 11:16:09 AM
|Charles, I agree with your present position on HFT--it must e curbed/controlled! It should not be allowed to continue as is since computers are now so powerful.|
Marvin S Johnson on 5/14/2020 12:06:06 PM
|Trump got this so right. Many of us figured this out years ago. The so called “analysts” are so full of it . Once you get into the “club” you get people looking at your “analysis” and baby——- you got it made. You bet they talk amongst each other and got it down as to who is going to say what and when. Who are they ? Simple. The big banks, the financial investment companies, a few big investors and the “Wall Street analysts” and tv goons they control. Sentiment is everything and once you get inside of this club, YOU got it made because you can influence the market. Trump got it so right.|
James on 5/14/2020 12:20:43 PM
|I agree that high frequency trading should be outlawed. Shorting should also be outlawed because of the nasty, negativity for some big guys who want to destroy a competitor.|
William L. Baumner III on 5/14/2020 12:24:47 PM
|YES! Get rid of HFT. Bring back the Uptick Rule.|
Tom Holcomb on 5/14/2020 1:08:56 PM
|Right on the analysts that come the big network use their name and fame to scam the game in their favor get big sell offs then buy on the cheap and jump back in then hype on the way up again|
The HFT 's should be reined in with computer selling off rampantly and lots of randomly
James Cuff on 5/14/2020 1:42:01 PM
|If you're going to trade the market, you should have to sit at your desk, like I do, and push the buy/sell button. HFT and computer program trading do not help the investor. They are only available to those with the resources to take advantage of investors.|
Scott on 5/14/2020 2:05:12 PM
|If anything happens it will be after Election Day.|
Jack Dicoskey on 5/14/2020 5:22:38 PM
|The George Soros' of the world are in control.|
E. V. Wagoner on 5/14/2020 6:16:56 PM
|I agree Charles. It's gone way too far. When the rich guys publicly talk their book knowing full well it will move the market it should be illegal! HFT just amplifies the wrong. I'm a free market guy but this practice is cheating.|
Martin Hile on 5/14/2020 7:30:29 PM
|Absolutely...and they hide behind that free market laissez faire excuse all the time and sadly lots of folks with little or no money in the market cheer them on in the name of Adam Smith or free market principles. CP|
Charles Payne on 5/14/2020 7:37:04 PM
|The change I would most like to see is every order placed being required to be on the market for 10 seconds - this would eliminate most spoofing, as HFT orders would become "real" orders, capital would be at risk, and brokers would strictly enforce account capital restrictions. This would greatly curb HFT though not eliminate it entirely, although I believe it would make the market "real" again. Also, federal elected officials would be barred from trading for the duration of their terms.|
Mike Hammer on 5/15/2020 7:00:14 AM
|Completely agree Charles, These big computer moves are Not rational and appear to be made by|
computers on Meth. With you all the way..
James B Brooks on 5/16/2020 3:03:52 PM
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