Author Archive

• Morning News: March 23, 2020
  Eddy Elfenbein, March 23rd, 2020 at 7:09 am

  Rout Resumes as More Nations Self-Isolate Against Virus

  Central Banks Deploy Record Sums to Break Financial Logjam, But May Need More

  With Iran Ravaged By Virus, U.S. Pressured to Ease Sanctions

  Fed Officials See More Moves Ahead

  The U.S. Shut Down Its Economy. Here’s What Needs to Happen in Order to Restart.

  Your Money: A Hub for Help During the Coronavirus Crisis

  Skies Clear As More Flights Grounded By Growing Coronavirus Curbs

  The U.S. Needs China’s Masks, as Acrimony Grows

  Coronavirus Market Meltdown: How to Invest Your Cash

  Cisco Commits $225 Million In Fight Against Coronavirus As Silicon Valley Initiates Investment Blitz

  SoftBank Plans $41 Billion of Asset Sales to Expand Buyback and Cut Debt

  Jeff Miller: Weighing the Week Ahead: A Quest for Clarity

  Howard Lindzon: Panic With Friends – Restructuring and Crisis Management…a Conversation With Paul Traub

  Michael Batnick: Animal Spirits: Bailout Main Street

  Ben Carlson: How I’m Managing My Own Money Through the Crisis, Random Thoughts on the Crash As We Catch Our Breath & What If You Buy Stocks Too Early During a Market Crash?

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• CWS Market Review – March 20, 2020
  Eddy Elfenbein, March 20th, 2020 at 7:08 am

  This continues to be one of the most dramatic periods in Wall Street history. The coronavirus and subsequent “social isolation” policy have had major impacts on the U.S. economy.

  This week’s CWS Market Review will be a bit different. Since we’re in such an unusual period, I’ll lay out for you my thoughts as to what’s happening, when it will end and what’s the best way to position ourselves for the future.

  

  Let’s be clear, the U.S. economy is in a recession. We don’t have solid numbers yet, but I expect to see gigantic increases in unemployment and gigantic drops in GDP. In Washington, the government is working on a major stimulus program, but the details still need to be worked out. This may alleviate some of the damage, but it won’t stop recession.

  Stocks have rallied and crashed nearly every day. The S&P 500 moved by more than 4% over eight straight days. On Monday, the Dow plunged nearly 12.9%. That was its second-largest daily percentage drop in its 124-year history. And this comes on the heels of last Thursday when the Dow had its fifth-largest drop in history.

  In fact, Monday’s fall edged out Black Tuesday, the infamous crash from October 28, 1929. You may be familiar with the famous Variety headline, “Wall St. Lays an Egg.” That was in reference to Black Tuesday. Well, this week, we laid an even bigger egg.

  The numbers are staggering. The S&P 500 moved by over 9% over three straight days. Over 18 trading days, the S&P 500 lost 29.5%. In one six-day stretch, the S&P 500 fell 20.7%. Here’s a great stat via Callie Cox. Since 1990, there have been 56 trading days when the S&P 500 has posted an intraday range of more than 5%. We’ve had seven of those this year, and five in the last five trading days.

  The Federal Reserve has now announced multiple programs in an effort to keep the financial system from cracking. Near where I live, and I’m sure it’s similar in your region, too, all the bars and restaurants are closed. Some are doing takeout. This is a devastating time for workers in the hospitality industries. (If you can, buy yourself a gift card from a local restaurant. That will keep the revenue stream going and you can cash it whenever you want.)

  This Drop Is Different. Here’s Why.

  Some of the recent market action has been so severe that it’s nearly impossible to keep up with which stocks have been punished and why. On Tuesday, the utility sector rose by nearly 13%. That just leaves me stunned. The whole idea of owning utes is to avoid such gyrations. Some stocks are jumping or falling 20% each day. Ansys (ANSS), which is a fairly staid company, saw its stock change by more than 12% on three straight days.

  But here’s the key point I want to get across: the recent selloff in the market is quite different from previous ones. This time, the threat to the market is external. It’s not the excesses of a bubble that pulled down the market (though there are excesses). Most businesses were in fine shape before the social-isolation policy caused the economy to grind to a halt. There was little wrong with the fundamentals of the economy.

  Here’s a thought exercise. Imagine the stock market is like betting on runners in a race. What drives who wins or loses is the skill of each runner, his or her training, exercise, nutrition and strategy. Those would be like the fundamentals we talk about like dividends and P/E Ratios.

  But what’s happened is that in the middle of the race, a heavy weight is placed on the backs of each of the runners. The weight is so heavy that it brings all the runners to a halt. Note that there’s nothing wrong with the runners. Once the weight goes, they’ll be back to normal.

  That’s similar to what we’re dealing with here. The structure of the U.S. economy is (mostly) sound. Things will change once there’s clear evidence that the virus is losing. There’s little substitute for victory.

  I often urge investors is to avoid one-dimensional thinking. People always ask me if the president or the Fed is going to harm the market. I explain that the market is far more complicated than one variable can affect.

  In this case, though, it really is all about one variable. As soon as there’s clear evidence that we’re winning the war against the coronavirus, the financial markets will respond. Until further notice, all vaccine and treatments news is economic and financial news.

  The Doolittle Raid of 1942

  There are no similar historic examples, but I want to mention what happened to the U.S. in 1941 and 1942. After Pearl Harbor, the U.S. stock market started to fall as investors gradually realized the enormity of the task before them. The entire country had to be mobilized for war from a standing start.

  There wasn’t much good news, but that changed dramatically on April 18, 1942 with Jimmy Doolittle’s daring raid over Tokyo. This was the famous “Thirty Seconds Over Tokyo.” For history lovers, it was on the anniversary of Paul Revere’s ride.

  Militarily, the Doolittle Raid didn’t do much, but psychologically, the effect was incalculable. It told Americans that we could do this job. That’s what we need to see in the fight against the coronavirus. The market and economy are going to be shaky until we see unmistakable signs of progress. There’s a big “virus discount” hanging over the market. I don’t know how large it is, perhaps 10% to 20%. Once that goes, valuations should respond.

  Thursday’s market was interesting because it was the first time in several days that trading looked something like normal. The daily change was one-tenth of the least volatile day of the preceding eight sessions.

  If the market hasn’t turned a corner, perhaps the panic phase has. Bear markets tend to be very concentrated. Even long bear markets find that most of the pain happens over the course of a few days. We may see stocks go down some more, but I’m doubtful we’ll see another string of days so frantic.

  The Buy List Is Beating the Market

  Given how extreme the stock market has been over the last three weeks, I’ve been impressed by the performance of many of our Buy List stocks. Over the last four days, the S&P 500 is down 11.13%, while our Buy List is “only” down 9.33%.

  Hormel Foods (HRL) has not only rallied, but the shares hit a new 52-week high on Wednesday.

  Shares of Stepan (SCL) have been on fire. The stock has gained more than 42% in four trading days. The stock hit another new high on Wednesday.

  

  Church & Dwight (CHD) is another stock that’s managing itself well. For the year, the stock is down about 5%. That makes it the 33rd-best performing stock in the S&P 500.

  Sherwin-Williams (SHW) reaffirmed its Q1 guidance and said it saw little disruption to its supply chains.

  Ross Stores (ROST) said it’s withdrawing its previous guidance and cutting back on its capex plans.

  Intercontinental Exchange (ICE) said it will close the floor of the NYSE and only have electronic trading. Two people tested positive this week.

  At the opposite end, some of our stocks have been hit very hard. Shares of AFLAC (AFL) have been cut in half this year. Obviously, as coronavirus spreads, claims will increase. I still have great faith in AFLAC. If you recall, the company handled itself well during the tsunami in 2011.

  Moody’s (MCO) is another stock that’s fallen sharply, though shares of MCO had done very well until the market broke. I think Moody’s is one of our top candidates to rally back strongly.

  Earnings Preview for FactSet

  FactSet (FDS) is due to release its fiscal Q2 earnings on March 26. This is for the quarter that ended on February 29, so the results won’t reflect the coronavirus. In December, FactSet reported fiscal Q1 earnings of $2.58 per share. That was a 9.8% increase over last year, and it easily beat Wall Street’s estimate of $2.42 per share. That was good to see because FDS had alarmed investors in September when it gave rather unimpressive guidance for 2019.

  For fiscal Q1, organic revenue grew 4.2% to $367.9 million. Annual Subscription Value (ASV) plus professional services, which is a key metric for FDS, came in at $1.48 billion. I also like that FactSet’s operating margin improved to 33.9% compared with 31.5% last year.

  Wall Street expects Q2 earnings of $2.49 per share. That sounds about right. The last we heard, FactSet expects earnings this year of $9.85 to $10.15 per share and revenue between $1.49 and $1.50 billion. Of course, that’s pre-virus. I would expect FactSet to withdraw any guidance.

  That’s all for now. Some key economic reports will be coming out next week. The new-homes sales report is due out on Tuesday. On Wednesday, the durable-goods report comes out. On Friday, we’ll get another revision to the Q4 GDP report. The last estimate said that the economy grew in real terms by 2.1% for the final three months of 2019. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

  – Eddy

• Morning News: March 20, 2020
  Eddy Elfenbein, March 20th, 2020 at 7:06 am

  Jobless Claims Mount as Employers and Workers Face Bleak Outlook

  Amid Virus and Market Tumult, Wall Street Lives a New Reality

  A Covid-19 Supply Chain Shock Born in China Is Going Global

  Best Defense Against Virus Proves Crushing to States’ Finances

  U.S. Power Industry May Ask Key Employees to Live At Work If Coronavirus Worsens

  ‘Strings Attached’: Governments Offer Financial Lifelines to Airlines, At A Price

  Putin Won’t Submit to What Is Seen as Saudi Oil-Price Blackmail

  Saudi Aramco Will Find It Increasingly Hard to Serve Two Masters

  The Work-From-Home Era Is Creating Its Own Boom Market

  Pizza Delivery In A Pandemic: Domino’s Is Hiring 10,000 Workers

  Ben Carlson: What’s Causing All the Panic Buying & Selling of Stocks?

  Joshua Brown: Why PE Ratios Are Useless in Finding a Market Bottom, We Need Some Wins & We Are Not Going to Participate in this Recession

  Jeff Carter: Let’s Take A Breath and Formulate Good Policy & More Great Ideas to Help the Markets

  Roger Nusbaum: We’re All Preppers Now

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• Morning News: March 19, 2020
  Eddy Elfenbein, March 19th, 2020 at 7:08 am

  Oil Prices Stage Rebound After Days of Relentless Selling

  Dollar Soars With Funds Liquidating to Withstand Virus Siege

  Fed Faces Threat Like Never Before While Virus Petrifies Markets

  Federal Reserve to Backstop Money-Market Mutual Funds Amid Coronavirus

  This Is the Only Way to End the Coronavirus Financial Panic

  Biggest Factory Shutdown Since World War II Hits U.S., Europe

  Racing to Head Off Evictions and Foreclosures

  Virus Pandemic Exercise Got One Thing Wrong: the U.S. Response

  There Aren’t Enough Ventilators to Cope With the Coronavirus

  Tesla’s Musk Offers to Make Ventilators Amid Shortage In Coronavirus Battle

  Google Critics See Its Firebase Tools As Another Squeeze Play

  Nick Maggiulli: Should You Buy Stocks Now?

  Michael Batnick: Animal Spirits: Is This Worse Than 2008? & When Is the Right Time to Buy Stocks?

  Ben Carlson: The Power of the Human Spirit & Returns From the Bottom of Bear Markets

  Joshua Brown: Live from the Compound (Social Distancing Edition)

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• Investors Sell Everything
  Eddy Elfenbein, March 18th, 2020 at 6:14 pm

  Today was another terrible day for the market. The Dow closed below 20,000 for the first time in three years. The S&P 500 was down “only” 5.18%, but the index managed to finish the day just above Monday’s close. That could be a good sign.

  Today was unusual in that investors were selling everything, including areas we normally think of as safe havens. The yields on Treasury bonds maturing more than three years out all rose by more than 10 basis points while the yields on anything maturing in less than six months dropped to nearly 0%.

  Since March 9, the yield on the 30-year Treasury has risen from 0.99% to 1.77%. Gold and crude oil both dropped sharply today. Oil fell 24% for its third-worst day on record. It hit an 18-year low.

  The small-cap Russell 2000 index fell more than 10%. The TED Spread closed at a 10-year high.

  On our Buy List, Hormel Foods (HRL) made a new high. Not on our Buy List, so did Walmart (WMT). Shares of Stepan (SCL) managed to close higher again today. This time, they rose by 2.50%.

• Morning News: March 18, 2020
  Eddy Elfenbein, March 18th, 2020 at 6:26 am

  Surging U.S. Dollar is Next Big Headache for World Economy

  Stocks, Oil Sliding Again In ‘Irrevocably Changed’ Markets

  U.S. Crude Hits 17-Year Low as Lockdowns, Restrictions Spread

  Fallout From Turmoil in Global Credit Markets Is Spreading

  Trump Told Mnuchin to Go Big, and a $1 Trillion Stimulus Emerged

  Fed Unveils Emergency Lending Programs as Companies Struggle to Raise Cash

  Coronavirus Sends Travel Business and Millions It Employs Into All-Out Crisis

  Glued to TV for Now, but When Programming Thins and Bills Mount …

  Tesla Stock Drops After Hours as County Says Fremont Factory is Not An ‘Essential Business’

  Ben Carlson: The Historic Sell-Off & a Game of Expectations

  Michael Batnick: How To Fight Hindsight Bias

  Nick Maggiulli: How the Coronavirus Crash is Different From 2008

  Jeff Carter: Uff Da

  Roger Nusbaum: How I Am Navigating Through The Coronavirus

  Howard Lindzon: Panic With Friends – Etoro Founder Yoni Assia

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• The S&P 500 Gains Back 6%
  Eddy Elfenbein, March 17th, 2020 at 7:14 pm

  The stock market had a decent recovery today. The S&P 500 gained 6.00%. Of course, we’re still a long way in the hole. The market was helped today by the Federal Reserve announcing “it would launch a lending facility to support short-term commercial-debt markets.”

  Ryan Detrick tweeted out a great stat. Officially seven consecutive days the S&P 500 changed at least 4% (up or down) on a closing basis. This tops the previous record of six days from November 1929.

  At one point today, the Dow dipped below 20,000. This was an odd day in that defensive stocks led a big up day. The top-performing sector today was utilities which were up 13.11%. That’s amazing.

  Our Buy List had another strong day in terms of relative strength. We beat the S&P 500 by more than 1.5%. Yesterday, we beat the index by nearly 2%. It’s unusual that we part ways so strongly from the broader market, but these are unusual times.

  Stepan (SCL) was up over 20% for us today. In the last three days, SCL has gained over 39%.

  

• Morning News: March 17, 2020
  Eddy Elfenbein, March 17th, 2020 at 7:11 am

  Surging Borrowing Costs, Vanishing Buyers: More Pain Ahead For European Junk Bonds

  ‘D’ Word Rears Head as Coronavirus-Hit Markets Brace for Recession

  U.S. Futures Fluctuate Amid Dollar-Funding Stress

  As Market Convulses, Big Banks Plan to Borrow Funds From Fed

  Goldman Sachs Sees the S&P 500 Hitting 2000 — But Then Bouncing Back

  In Coronavirus Testing Ramp-Up, U.S. Called Private Sector in Late

  Coronavirus Fight Lays Bare Education’s Digital Divide

  So We’re Working From Home. Can the Internet Handle It?

  Airlines’ $58 Billion Bailout Request Puts Scrutiny on Past

  Volkswagen to Suspend Production in Europe, Warns of ‘Very Difficult’ Year

  Joshua Brown: Six Steps for Leadership in a Crisis

  Howard Lindzon: Momentum Monday….Ya Right! What Happens After The Stock Market Falls

  Ben Carlson: Why You Can’t Always Swing at the Fat Pitch During a Crisis

  Michael Batnick: It Takes a Village & Talk Your Book: Positive and Negative Compounding- Trading Direxion Leveraged ETFs

  Jeff Carter: Sheer Panic

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• Wall Street Lays an Even Bigger Egg
  Eddy Elfenbein, March 16th, 2020 at 8:10 pm

  

  Today was an extraordinarily difficult day for Wall Street. This was one of the worst days in market history.

  Let’s review some of the damage.

  The S&P 500 fell by 11.98%. The Dow was off 12.93%. Today was the Dow’s second-biggest loss in its history. It edged our Black Tuesday, the legendary crash on October 28, 1929.

  

  The headline of Variety proclaims “Wall St. Lays An Egg” after the October 29, 1929 crash of the Stock Market. (Photo by Library of Congress/Corbis/VCG via Getty Images)

  The Nasdaq fell 12.32% for its biggest one-day loss in history.

  In the S&P 500, 339 stocks made new lows today. Not one made a new high.

  Just 10 stocks in the S&P 500 closed higher today. One was Hormel.

  It may seem like an odd consolation, but our Buy List beat the markets by nearly 2% today. We were down “only” 10%.

• Morning News: March 16, 2020
  Eddy Elfenbein, March 16th, 2020 at 7:16 am

  China’s Economy Suffers Historic Slump Due to Virus Shutdown

  Global Central Banks Pull Out All Stops As Coronavirus Paralyzes Economies

  Fed Brings Out Big Guns, Investors Fear the Worst

  These Charts Show How Markets Are Reacting to the Fed Bazooka

  What Do the Fed’s Latest Moves Mean For U.S. Consumers?

  Coronavirus Cost to Businesses and Workers: ‘It Has All Gone to Hell’

  ‘There Is Plenty of Food in the Country’

  Airlines Slash Flights Across Globe as Demand Evaporates

  Airlines Seek Emergency Aid As Coronavirus Brings Industry to Near-Halt

  Fishing Presents a Vexing Snag in Brexit Talks

  Cullen Roche: It’s Time to Declare War on COVID-19

  Jeff Miller: Weighing the Week Ahead: A Pundit’s Paradise – Anyone Can Play

  Jeff Carter: Penalizing Failure

  Ben Carlson: Levels of Losing in the Stock Market & How Long Does it Take to Make Your Money Back After a Bear Market?

  Michael Batnick: The Psychology of Bear Markets & What Happens After the Stock Market Falls?

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