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Morning Commentary


By Charles Payne, CEO & Principal Analyst
6/16/2020 9:11 AM

Text Box: PURPOSE AND DESIGNWhy is the Federal Reserve establishing the PMCCF and the SMCCF?Recent events have significantly and suddenly impacted financial markets. The spread of COVID-19 has harmed communities and substantially disrupted economic activity in many countries, including the United States. These disruptions have been felt by even highly rated companies that need liquidity in order to pay off maturing debt and sustain themselves until economic conditions normalize. The PMCCF will provide a funding backstop for corporate debt to Eligible Issuers so that they are better able to maintain business operations and capacity during the period of dislocation related to COVID-19. The SMCCF will support market liquidity for corporate debt by purchasing individual corporate bonds of Eligible Issuers and exchange-traded funds (ETFs) in the secondary market.How are the PMCCF and SMCCF structured and what can they invest in?The PMCCF will provide companies access to credit by (i) purchasing qualifying bonds as the sole investor in a bond issuance, or (ii) purchasing portions of syndicated loans or bonds at issuance. The SMCCF may purchase in the secondary market (i) corporate bonds issued by investment-grade U.S. companies; (ii) corporate bonds issued by companies that were investment-grade rated as of March 22, 2020, and that remain rated at least BB-/Ba3 at the time of purchase; (iii) U.S.-listed ETFs whose investment objective is to provide broad exposure to the market for U.S. investment-grade corporate bonds; and (iv) U.S.-listed ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds.In what way is the U.S. Department of the Treasury supporting the CCFs?The Department of the Treasury, using funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), will make a $75 billion equity investment in the SPV for both of the CCFs. The initial allocation of the equity will be $50 billion toward the PMCCF and $25 billion toward the SMCCF.Is there a limit to the size of the SPV?The combined size of the CCFs will be up to $750 billion.Life’s but a walking shadow, a poor player

That struts and frets his hour upon the stage,

And then is heard no more. It is a tale

Told by an idiot, full of sound and fury,

Signifying nothing.

-William Shakespeare, Macbeth

Macbeth was lamenting life itself after a series of misfortunes, including the death of his wife, which ushered in an avalanche of pessimism. Yesterday saw the stock market filled with sound and fury but it remains to be seen what it’s signifying.

The headline must be the fact that just as the bears were making the punch bowls and putting their dancing shoes on, the market was able to climb off the canvas early in the session.

That initial resolve out of the gate was a strong signal.  The rebound began long before the Federal Reserve weighed in with big news of its intention to buy corporate bonds (see FAQ sidebar). 

The Fed news was sort of expected but moving from exchange-traded funds (ETFs) to actual bond purchases brings up the question of whether the Fed might buy stocks one day.

Moreover, the move came the day before Powell’s trip to Capitol Hill. He will fend off dumb questions and push for Washington, D.C. to keep adding stimulus into the system.

He was signifying something, and markets heard.

Shared Recovery

Midway through yesterday’s session, the NASDAQ Composite was positive, and the S&P 500 was moving in the same direction, but only two sectors were higher. Even with minutes to go before the close, oil and drug manufacturing names were struggling to weigh heavily on the Dow Jones Industrial Average, while Energy and Health Care edged into the plus column by the closing bell.

The good news is the market was led by old-school media names and homebuilders. Growth fared well, especially with software names. The most intriguing aspect of the session is that COVID-19 lockdown names held onto early gains while being joined by other names.

S&P 500 Index


Communication Services XLC


Consumer Discretionary XLY


Consumer Staples XLP


Energy XLE


Financials XLF


Health Care XLV


Industrials XLI


Materials XLB


Real Estate XLRE


Technology XLK


Utilities XLU


There is a lot of room to broaden out the rally.

S&P 500 Winners:

S&P 500 Losers:

Portfolio Approach

Today’s Session

The market is poised to open higher as economic data continues to point to rapidly improving economy and optimism about the future.  The Empire State Manufacturing Survey was lost in all of yesterday’s excitement, but there was monster enthusiasm for conditions in manufacturing six months from now. 

Not only did the Empire State Manufacturing Survey come in significantly better than expected, the read for expectations were mindboggling.  The month to month increases were amazing lifting general business conditions to its highest level in more than a decade.  Manufacturers also expect to invest in their businesses after seeing declines in May.

Homebuilder Lennar (LEN) blew away earnings consensus and offered strong guidance for the rest of the year. 

Retail Sales Erupt

May retail sales came in at +17.7% more than double the most optimistic estimate of +8.4%.  The number is remarkable.  We will have details on the afternoon note.

Retail Sales U.S. Retail Sales

US leading the Way

Thanks for your timely information. I've learned a lot from your sessions and your book and hope to learn more.

Linda Miller on 6/16/2020 1:47:50 PM
I think the bubble caused by the money pumped into the economy will push us above the normal before the virus. This should last for about six months, what happens after the 6 trillion high depends on how well the businesses invest this win fall!

Jay Jay on 6/16/2020 2:03:39 PM

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