Investors Are Less Bullish
Over the past few days, many investors have gone from extremely bullish to modestly bullish. That’s because while the market leads the fundamentals, you can’t have a record high market with the shutdowns still in place. Maybe we will see the market get closer to a record high on the announcement that New York is reopening. Many have become less bullish. Especially because stocks are coming close to pricing in the notion that the economy will reopen without any issues along the way.
Most obvious issues are that the virus can take longer than we think to subside enough to reopen the economy and that it comes back in the fall. Many are most concerned about the social distancing and hesitant behavior after the economy reopens. Our world will unlikely change in the long term, but people will likely be more cautious until we get a vaccine in the next year or so.
Massive Rally Continues
Stocks are dramatically more expensive than they were in late March. S&P 500 is up 22.91% since its bottom on March 23rd. CNN fear and greed index rose from 26 to 33 which put it in the middle of the fear category. And there can be more room to run in the short term. But most of the explosive part of the rally is over. We might grind higher with a few big declines when bad news comes out. Bad news matters a lot more when stocks are this high.
As you can see from the chart below, of the 10 bull markets that confirmed their 20% gains the fastest, on average there is only a modest gain in the next 60 days. In other words, the fastest part of the rally is over. The market needs to digest these gains. If the market keeps rallying at this speed, we will see a new record high in a couple weeks. There doesn't seem to be any way the market hits a new record high with the economy still closed.
Wednesday’s Big Rally Detailed
Also, the market continued it’s amazing week by increasing 3.41% on Wednesday. This will likely be a very strong week since the market is closed on Friday because of Good Friday. The market is up 10.5% in 3 days. Nasdaq was up 2.58% as it got above 8,000. As you can see from the chart below, the Nasdaq is now up in the past 6 months which would have been considered impossible just 2-3 weeks ago.
Big tech names like Microsoft and Amazon weren’t down for long. Russell 2000 was up 4.61%. KBW regional bank index has been on a ridiculous run as it is up 17.34% in 3 days. VIX was down 3.35 to 43.35. It’s still way too high. Obviously, it won’t go straight down to the teens, but it will eventually get there later this spring.
Every single sector was up. Best ones were real estate and energy which were up 7.41% and 6.74%. Energy stocks are hoping for an OPEC+ deal for production cuts. Once that’s in place, investors will still need to deal with the collapse in demand. Oil is unlikely to get above $30 until the shutdown ends and the economy starts to improve.
Costco, Booking, & Starbucks
Costco reported a 12.3% pop in March same store sales growth excluding foreign exchange and gas prices. Gas hurt sales obviously since prices cratered. Comp sales growth was 12.1% in America, 7.2% in Canada, and 19.2% in international markets. The stock fell 2.15% after hours because this good news was already priced in.
Booking’s 8-K disclosed that bookings were down at least 85% in the past few weeks excluding the impacts of cancelations. That’s obvious because no one is traveling in this environment. Traveling won’t start to improve until at least May.
Starbucks reported 32 cents in EPS which missed estimates by 7 cents. COVID-19 in China hurt results by 15 to 18 cents. The company withdrew its full year guidance like almost all companies will. In the quarter, the firm stated U.S. comp store sales growth was -3% because of the last 3 weeks of the quarter. The firm won’t cut its dividend, but it did suspend its buyback program as expected.
As a result of this report, the stock fell 2.19% after hours. It’s amazing that a good report from Costco and a bad report from Starbucks both led to the same declines. That’s because both were widely expected.
COVID-19 Update
In general, most of the news on COVID-19 is good besides the high number of new deaths in America which is a lagging indicator. As you can see from the chart below, the rate of change of hospitalizations in NY is falling. It should go negative in a few days.
Peak in new hospitalizations in NYC was on March 30th which saw 1,384 new patients. Best news is the model, which predicts this virus, shows there will only be 60,415 deaths in America which is down from about 81,000 deaths a couple days prior. Obviously, all deaths are bad, but less deaths are good.
In America, the number of new cases per day is stabilizing. It will probably start a downtrend next week. We’ve already seen the peak in New York. There were 31,935 new cases on April 8th which was down from 33,460. Bad news is there were 1,940 new deaths which brings the total to 14,795. That means the model believes we’ve seen less than a third of the deaths we will see.
We can be a bit more optimistic because the model has been trending lower. The betting market shows there is a 96% chance of there being between 500,000 cases and 1 million cases in America by the 15th. There will likely be under 5 million global cases by April 30th. At this point, there is currently a 70.9% of that happening.