Big Time Reversal
If you thought the extreme action in markets was over like I did, you were wrong. Technically, the market barely moved on Tuesday, but the decline in stocks from the opening pop was epic. It was the biggest gain surrendered since October 17th, 2008. This decline was different from October 2008. S&P 500 fell much more straight down.
In October 2008 it swung between gains and losses 28 times. The market was up 3.11% as of 10AM. It fell 2.09% in the morning, then rallied 2.01% before finally giving way to a decline. It fell 0.16% on the day which was down 3.22% from the morning high.
Most people likely believe this is a bad signal. Supposedly, it could mark a big turning point. However, stocks were very overbought in the near term and fell. Mostly because the number of COVID-19 cases in America has increased in the past 2 days.
It was surprising that stocks opened up as much as they did after they increased so much on Monday. From 2PM Friday to 10AM Monday the S&P 500 rallied 11.24%. That’s a year’s worth of gains in 1.5 days. That can’t continue. The decline isn’t surprising.
Work From Home Stocks
A new trend is working from home because of social distancing and the economic shutdown. There are more ETFs than stocks, so it’s no surprised they are working on a work from home ETF. The screen shot below is a list of potential work from home stocks.
They missed Wayfair which sells furniture online. It’s a double play because it’s an online retailer and because it sells office furniture. The stock is up 229% from its low on March 19th.
A big discussion among investors is centered around how software stocks never crashed in this bear market. To be fair, they did experience volatility. Adobe fell 25.64% from its peak. Microsoft fell 28.24% and Salesforce.com fell 35.72%. These stocks all fell either in line with the market, slightly worse than the market, or slightly less than the market. It’s not like they didn’t fall.
Bearish investors seem to want to see a true crash. That won’t happen because these are safety stocks in a world that’s being pushed more towards online work. It would not be good to go short Microsoft or Amazon. Because of these major winners, it's unlikely that the S&P 500 will hit a new low this year. These stocks gained share in the S&P 500 because they have outperformed.
Review Of Tuesday’s Wacky Action
Nasdaq fell 0.33%. The software stocks that I just mentioned underperformed slightly. CLOU cloud computing ETF fell 1.02%. Personally, I think investors calling for a crash in the cloud stocks don’t understand their businesses. They think any stock with a high PE multiple should fall more than the market. Many of these firms have large competitive advantages and strong secular growth. That’s the best of both worlds.
Russell 2000 was up 3 basis points. As expected with this wild action, the VIX was up; it increased 1.46 points to 46.70. It will likely fall in the next few weeks. In a direct reversal of Monday, the utilities and tech sectors fell as they were down 1.21% and 1.06%.
Consumer staples sector fell 1.2% after underperforming on Monday. Energy was up 2% even though oil prices fell. These stocks don’t always follow the commodity. Materials stocks were the best performers as they increased 2.42%.
Pinterest Provides Positive Update
Pinterest updated investors on its Q1 results which it will report on May 14th. Surprisingly, these weren’t bad results as the firm estimates it will have between $269 and $272 million in revenues which beat estimates for $268.1 million. Furthermore, it had a big burst in users which makes sense because people have been stuck at home, potentially making more things themselves. It will have between 365 and 367 million global active users which beat estimates for 352.7 million.
The CFO stated, "Fortunately, despite weakness across nearly the entire advertising market, our exposure to some of the most affected segments like travel, automotive, and restaurants has not been significant." The firm suspended its guidance just like Shopify. However, it still rallied 13% afterhours. We can expect more stocks to rally despite suspending their guidance.
COVID-19 Update
Tuesday was a great day for Italy, but a deadly one for America as the number of deaths spiked in New Jersey. Good news is the odds of there being under 5 million global cases by the end of April rose to 69.9%. Further good news is the health data website says peak hospital usage will be on April 15th which is very close.
Peak hospital usage in New York is April 8th and the peak deaths in New York will be April 9th. As you can see from the chart on the right, the number of new ICU admissions has been cratering. The chart on the left shows new hospitalizations increased, but are still down huge from the 2nd.
It was a great day for Italy. News reports that Italy will reopen on May 4th will likely be accurate. Wuhan reopened on April 8th. There were only 3,039 new cases in Italy as the country has stemmed the tide of new cases. That’s the lowest number since May 13th. The situation still isn’t under control though because the number of active cases still increased. It rose from 93,187 to 97,067.
Once this peaks in a day or 2, it will be on a relentless path lower. Let’s wait for this to decrease for at least 2 weeks before we hear calls for the country to reopen. America had the deadliest day ever as 1,970 people died. 229 people died in New Jersey. Number of new cases increased from 30,331 to 33,331. That’s still below April 4th’s peak. The number of new cases will stabilize for another week before forming a sustained downtrend.