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Morning Commentary

WATCH THAT LAST STEP… IT’S A DOOZY

By Charles Payne, CEO & Principal Analyst
5/20/2020 9:20 AM

The market was just strolling along with the Dow, ready to cross over and join the NASDAQ Composite and the S&P in the plus column when the bottom fell out in the blink of an eye.

There are two reasons:

CBO Headline

The Congressional Budget Office (CBO) released economic estimates for the second quarter, which obviously triggered algorithmic selling: 

The numbers were not outside the realm of possibilities or even an aberration, but it was a sobering reminder of the damage caused by closing the economy and making people stay at home. The release came after Jerome Powell and Steven Mnuchin made a video presentation to members of the Senate that was a de facto plea for more financial assistance. 

There is no doubt a so-called ‘Phase 4’ relief package will be difficult to get through both chambers of Congress. It was made even more difficult when that mind-boggling $3.0 trillion bill Nancy Pelosi pushed through the House last Friday. If there is a need for more help, it would have to be timed ahead of full-on calamity.  Read: it’s not the time for horse-trading or disingenuous money grabs.

After the initial hit that saw the Dow Jones Industrial Average (DJIA) slump 200 points, buyers emerged, and the index was off less than 100 points. The rebound faded, and selling gathered momentum into the closing bell.

Too Good to be True?

Late in the day, an article from Stat News attempted to poke holes in the positive COVID-19 vaccine news that helped to propel the market the day before. The article dissed Moderna’s (MRNA) valuation and reminded everyone the company sells zero products. It also questioned why there was so much enthusiasm, pointing out the company releases … “words, not data,” saying with science, numbers speak much louder than words.   

The author also offered other reasons to take the news with “a grain of salt.”

The National Institute for Allergy and Infectious Diseases (NIAID) is partnering with Moderna and has not released its version of the finding just yet.

The news focused on just eight of 45 participants, as results on the other 37 trial participants were not ready yet. The article pointed out that no one knows the ages of the eight that were tested, and they could be on the younger part of the pool (18 to 55 years), which would have a better response to the vaccine versus older would-be participants.

I think there was some political bias in the article, but it came on the same day management announced a huge stock offering to raise funds.

You can read the piece for yourself: https://www.statnews.com/2020/05/19/vaccine-experts-say-moderna-didnt-produce-data-critical-to-assessing-covid-19-vaccine/

Shares of Moderna declined 10.4% on the session and tumbled -5.9% in after-hours trading.

Moderna was not the only hot stock making a dramatic upturn lower. Aurora Cannabis (ACB) has been on fire (pun not intended). The party stopped abruptly yesterday after shares rallied +12.6%. The stock finished the day -14.3%. These names reflect hot money chasing performance.

Also, I wasn’t happy with the way airlines closed after more signs of increased demand had them taking off (pun intended) at the start of trading.

Surgical Reopening

While the market was fading into the close a few blocks from the New York Stock Exchange, there was good news from New York University (NYU) that it would conduct in-person classes for the fall semester.

The news got me to thinking that just as some states have partially reopened, perhaps some cities should consider doing the same.

Look at the COVID-19 data from the old neighborhood in the Bronx versus New York’s Greenwich neighborhood. It’s like two different countries. There are 15.5 times more cases and 23.6 times more deaths. Therefore, I don’t understand why businesses in the Greenwich area would be prohibited from opening up by using social distancing and other smart practices?

New York Covid-19 Map

Greenwich Village Manhattan

Fordham Hills Bronx

Zip Code

10012

10468

Cases

155

2,566

Cases Per 100,000

646

3,346

Deaths

7

172

Deaths Per 100,000

30

224

 
https://www1.nyc.gov/site/doh/covid/covid-19-data.page

Portfolio Approach

We add to position in Consumer Discretionary yesterday, as well as increasing our weighting in Consumer Staples while lowering Cash to 5% in our Hotline Model Portfolio.

Today’s Session

The futures are pointing to a higher open, with the Dow looking to open 300 points higher on the back of earnings from Target (TGT) and Lowes (LOW).

Baltic Dry Index

Dry bulk shipping rate continue to rise, up 4 consecutive days, with the Baltic Dry Index up 5.3% to 477 as demand picks up after government lock downs begin ease and the world starts to reopen.  The index hit a bottom on February 10 at 411.  Capesize rates rose 14.1%, Panamax rates gained 1.9% and Handysize rates increased 1.5%.  In September, the index was up to 2,518.  Demand from Brazil, China and India will need to continue to increase to move the index higher.


Comments
Thanks for your in depth analysis

Art Hajjarian on 5/20/2020 10:59:03 AM
Thank you, Art.  

Charles Payne on 5/20/2020 11:00:18 AM
 

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