A static market once again took its cue from politicians, making it the second session in a row. Although major indices climbed off the canvas early in the session, that spark appeared to have come from a headline on fiscal stimulus.

Staff for Pelosi, McConnell, Schumer, and McCarthy are scheduled to meet to discuss the omnibus spending package and coronavirus relief, according to a senior Democratic aide.

Perhaps it was spurred by a disappointing read on the Initial Jobless Claims, but both political sides understand the stakes for the folks that sent them to Washington, D.C. in the first place. It is all about Main Street, and the most vulnerable folks in society from small businesses and workers that no longer have a job.

Wall Street loves the news, too.

There’s all the talk about a divided government – a government that checks unnecessary government actions, including new rules and taxes. When it comes to pumping money into society, Wall Street cheers. There is never too much of a good thing for them, and the more money sloshes around, the better.

All the major indices rallied higher, and market breadth was strongly bullish.

Market Breadth	NYSE	NASDAQ
Advancing	1,948	2,293
Declining	1,113	1,270
52 Week High	77	124
52 Week Low	6	10
Up Volume	2.92B	4.50B
Down Volume	1.34B	781.72M

Put Up Your Dukes

Just as it appears, Republicans and Democrats might stop the fighting and find a way to help the nation, the head of the Federal Reserve is ready to punch out the Treasury Secretary.

After the market closed on Thursday, Treasury Secretary Mnuchin sent a letter to Fed Chairman Jerome Powell asking for his money back.  The move caught Powell by surprise, and he quickly responded that he thinks it’s a mistake. 

Powell has lobbied for emergency programs that need to be coordinated with the Treasury to remain in place. 

Mnuchin knew the move would sting like a sharp jab across the nose, so he pointed out his role in the development of these programs and his understanding of how to pull the plug. The demand didn’t quite catch up to the hype, but tweaks were being made.

 

• Expected Drawdowns: ~$2 trillion lending capacity
• Actual Drawdowns: ~1.545 trillion

Letter from Secretary Steven T. Mnuchin on the Status of Facilities Authorized Under Section 13(3) of the Federal Reserve Act

https://home.treasury.gov/news/press-releases/sm1190

Yesterday, U.S. Treasury Secretary Steven T. Mnuchin sent a letter to Chairman of the Federal Reserve Board of Governors Jerome Powell requesting a 90-day extension of the Commercial Paper Funding Facility (CPFF), the Primary Dealer Credit Facility (PDCF), the Money Market Liquidity Facility (MMLF), and the Paycheck Protection Program Liquidity Facility (PPPLF).

“With respect to the facilities that used CARES Act funding (PMCCF, SMCCF, MLF, MSLP, and TALF), I was personally involved in drafting the relevant part of the legislation and believe the Congressional intent as outlined in Section 4029 was to have the authority to originate new loans or purchase new assets (either directly or indirectly) expire on December 31, 2020. As such, I am requesting that the Federal Reserve return the unused funds to the Treasury. This will allow Congress to re-appropriate $455 billion, consisting of $429 billion in excess Treasury funds for the Federal Reserve facilities and $26 billion in unused Treasury direct loan funds,” said Secretary Steven T. Mnuchin.

“In the unlikely event that it becomes necessary in the future to reestablish any of these facilities, the Federal Reserve can request approval from the Secretary of the Treasury and, upon approval, the facilities can be funded with Core ESF funds, to the extent permitted by law, or additional funds appropriated by Congress. I am deeply honored to have worked on executing these programs and hope that because of our collective actions, Congress will show similar trust in Federal Reserve Chairs and Treasury Secretaries in the future.”

Perhaps those funds could get to smaller businesses and households rather than support many zombie companies, which have taken in more than a trillion dollars in this environment. 

But one thing that stands out is the day these programs were announced (along with prior programs) is the same day the stock market made a bottom. 

Wall Street was thrilled back then, so let’s hope it’s not equally disappointed now that the plug is being pulled.

Announcement

Federal Reserve announces extensive new measures to support the economy

https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm

March 23, 2020

The Federal Reserve's role is guided by its mandate from Congress to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system.

Supporting the flow of credit to employers, consumers, and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing. The Department of the Treasury, using the Exchange Stabilization Fund (ESF), will provide $30 billion in equity to these facilities.

Establishment of two facilities to support credit to large employers – the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.

Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.

Facilitating the flow of credit to municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.

Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.

In addition to the steps above, the Federal Reserve expects to announce soon the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.

I think these funds could be better used by Congress. However, there has to be a sense of urgency.

Message of the Market

Whoa. Energy just won’t quit. Perhaps traders continue to unwind the Biden trade-in Utilities, which were poised to be the biggest winners in a ‘Blue Wave,’ as they are quickly pouring back into black gold. 

Note: those electric vehicle stocks continue to move higher, but they are not a part of the S&P 500.

S&P 500 Index	+0.39%
Communication Services XLC	+0.61%
Consumer Discretionary XLY	+0.49%
Consumer Staples XLP	+0.27%
Energy XLE	+1.64%
Financials XLF	+0.33%
Health Care XLV		-0.07%
Industrials XLI	+0.25%
Materials XLB	+0.42%
Real Estate XLRE	+0.16%
Technology XLK	+0.81%
Utilities XLU		-1.00%

The growth versus value debate continued with the former enjoying outperformance. But in the tech space, it wasn’t the trillion-dollar names that led the way. 

Big Winners in Tech:

Semiconductors

When Nvidia (NVDA) tumbled out the gate, it didn’t look great for chipmakers, but Nvidia came back.  The Philly Semiconductor Index (SOXX) is now up 39.0% for the year, and it sports a chart that screams: “more upside, more upside.”

Software & Cloud

There was a big move in software, especially those Software-as-a-Service (SaaS) cloud stocks. Buyers were looking ahead to earnings from Workday (WDAY). The company blew away the consensus, initially sending shares into orbit, but they came back to earth when the Chief Financial Officer (it’s always the CFO) warned that the Covid-19 headwinds are hurting net new bookings. 

Communication Equipment

Zebra (ZBRA) led the way yesterday, continuing a sizzling move since October. The stock is seen as a major winner in the age of Covid-19.

Portfolio Approach

There were no changes in the Hotline Model Portfolio yesterday. 

Today’s Session

Earnings in retail names continue to impress.

William Sonoma (WSM)

• Earnings: $2.56; consensus $1.51
• Revenues: +22.3% $1.76B, consensus $1.59B
• Comp-Sales: +24.4%; consensus 11.3%

Comps By Brand:

• Williams-Sonoma: +30.4%
• Pottery Barn: +24.1%
• Pottery Barn Kids and Teen: +23.8%
• West Elm: +21.8%
• Net Ecommerce comps: +49.3%
• Store net comps: -11% 
• No Guidance

Wow!

Foot Locker (FL)

• Earnings $1.21; consensus $0.63
• Revenue +9.3% $2.11B; consensus $1.95B
• Comparable store +7.7%; consensus -1.2%
• Operating margin 8.5%; consensus 4.6%
• Gross Margin 30.9%; consensus 28.7%
• Inventories $1.19M; from $1.3M last year
• Cash $1.39M from $744k
• Repurchase 308K for $10M
• No Guidance

Hibbett Sports (HIBB)

• Earnings $1.45; consensus $0.45
• Revenues +20.3% $331.3M; consensus $286.4M
• Comparable sales +21.2%
• Brick and Mortar Comparable sales +17.5%
• E-commerce 50.7%
• Guidance: Q4, Earnings $1.00 - $1.10; consensus $0.60

 

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