Best Day in 87 Years
Posted by Eddy Elfenbein on March 24th, 2020 at 5:34 pm

Amazing day on Wall Street.

This was the single-best day for the Dow in 87 years.

The Dow finished up 11.37%. That nosed out September 21, 1932 for fourth-best day ever.

The Dow beat the S&P 500 by 2% today. That’s very unusual. Three Dow stocks were up more than 20% today (Boeing, Amex, Chevron).

How about the S&P 500 Energy? It was up 16.31% today. That’s the entire sector!

While today was the Dow’s best day since 1933, that 1933 day wasn’t really one day of trading. The exchanges had been shut down for a week by FDR for the Bank Holiday. Stock prices shot up after reopening.

This was due to the Emergency Banking Act.

Stocks Surge on Congressional Aid
Posted by Eddy Elfenbein on March 24th, 2020 at 11:22 am

The stock market is up strongly this morning. It seems that news from the Federal Reserve failed to get the market going, but news of fiscal stimulus is finally working.

As I write this, the S&P 500 is up over 6.5%. I saw that over 140 stocks in the index are up more than 10% today.

That’s good to see but bear market rallies love to convince folks that the coast is clear before hitting them again.

Morning News: March 24, 2020
Posted by Eddy Elfenbein on March 24th, 2020 at 7:15 am

Boundless Fed QE Fuels 2% Equity Bounce, Calms Dollar

Stocks Climb From Lowest Since 2016; Dollar Drops

Dollar Rally Loses Steam After Fed Move Buoys Risk Appetite

Dealbook: Lives Versus Livelihoods

Pelosi’s $2.5 Trillion Virus Bill Delays Mortgage, Car Payments

House Democrats Would Give Airlines, Contractors $40 Billion Bailout

3 Newspapers Ask China to Reverse Decision to Expel American Journalists

Start-Ups Jump the Gun on Home Kits for Coronavirus Testing

Amazon Suspends Almost 4,000 Seller Accounts Over Price Gouging

PG&E Will Plead Guilty to Involuntary Manslaughter in Camp Fire

Nick Maggiulli: Buying During a Crisis

Michael Batnick: The Essence of Risk Management

Jeff Carter: Bailing Out Corporations

Joshua Brown: Fastest 30% Sell-Off in History & Why Stocks and Bonds Fell Together Last Week

Ben Carlson: How Are Diversified Portfolios Holding up During the Crash?

Be sure to follow me on Twitter.

The S&P 500 Drops Below 2,200
Posted by Eddy Elfenbein on March 23rd, 2020 at 12:24 pm

The Fed rolled out the big guns and it didn’t stop the damage. The S&P 500 was down almost 5% today at its low. From the intra-day high in February to today’s low, the S&P 500 has lost 35.4%.

At 36% it becomes a double bear market. That’s two 20% losses on top of each other.

QE Infinity Returns
Posted by Eddy Elfenbein on March 23rd, 2020 at 10:46 am

For the first time in its 228-year history, the NYSE is operating without its trading floor. All the trading today is electronic.

This morning, the Federal Reserve pledged to purchase unlimited assets in an effort to support the market.

The Federal Reserve said Monday it will launch a barrage of programs aimed at helping markets function more efficiently amid the coronavirus crisis.

Among the initiatives is a commitment to continue its asset purchasing program “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”

That represents a potentially new chapter in the Fed’s “money printing” as it commits to keep expanding its balance sheet as necessary, rather than a commitment to a set amount.

The Fed also will be moving for the first time into corporate bonds, purchasing the investment-grade securities in primary and secondary markets and through exchange-traded funds. The move comes in a space that has seen considerable turmoil since the crisis has intensified and market liquidity has been sapped.

The move initially seemed to help the markets, but stock prices have since fallen back into the red.

Danaher (DHR) is up today after the FDA approved a quick-acting COVID-19 test. The current tests take several hours and have to be shipped off to a hospital, but Danaher’s takes 45 minutes and can be done right there.

Morning News: March 23, 2020
Posted by Eddy Elfenbein on 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?

Be sure to follow me on Twitter.

CWS Market Review – March 20, 2020
Posted by Eddy Elfenbein on 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
Posted by Eddy Elfenbein on 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

Be sure to follow me on Twitter.

Morning News: March 19, 2020
Posted by Eddy Elfenbein on 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)

Be sure to follow me on Twitter.

Investors Sell Everything
Posted by Eddy Elfenbein on 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%.