A fraught week closed on a muted note, as stocks meandered between gains and losses following a string of record-setting (in a bad way) economic data Friday.
Investors were also subjected to still more disconcerting headlines about the state of Sino-US relations.
Mid-week, it looked as though the train was poised to careen clear off the tracks, but equities managed to pull it together on Thursday, and by the time the closing bell sounded on Friday afternoon, this week’s loss on the S&P was a manageable 2.3%. Big-cap tech’s weekly decline was just half that.
Crude, meanwhile, managed a third consecutive week of mammoth gains, helped along by the first stock draw at Cushing in months, another drop in oil rigs stateside (to an 11-year low) and a unilateral move from the Saudis to help support the market (and rescue their budget).
At the same time, the reopening of economies around the world is helping revive demand.
“Optimism on the demand side of the oil equation came courtesy of the quicker-than-expected easing of containment measures and resumption of economic activity [which] will result in a narrower fall in demand during the first half of the year than previously thought”, PVM said, in a Thursday note documenting a slightly improved outlook from the IEA.
“On the supply front, the accelerating production shut-ins outside of OPEC have greatly contributed to the supportive backdrop”, analyst Stephen Brennock went on to say, noting that when “faced with tepid demand and low oil prices, non-OPEC crude supply has been falling faster than expected”.
Still, the IEA’s outlook is far from rosy, even as “tank tops” is now seen as less likely than it was last month, during “Black April“. “[The] picture is still very bleak” for the industry, director Fatih Birol said Thursday.
“More than 30 tankers laden with [Saudi] crude are set to reach the US this month and the next”, Bloomberg cautioned on Friday. “That could put fresh pressure on storage just as the glut shows signs of easing”.
Still, this is a market that will take what it can get following last month’s surreal adventure in negative pricing, and hope springs eternal that gasoline demand will rebound and passengers will start braving the “friendly” skies again – donning mandatory face masks, of course.
New York, New Jersey, Connecticut and Delaware together agreed to let beaches reopen for Memorial Day weekend, albeit at reduced capacity, Andrew Cuomo said Friday. “If other states were opening, and New York wasn’t, you’d have millions of people flooding those beaches”, Cuomo remarked. “There’d be a problem, and that wouldn’t help anyone”. Football and volleyball are prohibited and New York City’s beaches won’t open, Bill de Blasio contends.
Generally speaking, New York’s key virus metrics continue to move in the right direction. There were “just” 132 deaths in the past 24 hours, the fifth consecutive day of fatalities below the 200 mark. It was the first time in seven weeks that deaths have been below 150.
This is obviously a crucial juncture. We’re going to find out, over the next several weeks, whether reopening means a big surge in infections, hospitalizations and, ultimately, fatalities. So far, the results from Georgia are somewhat encouraging, but Wisconsin seems to be tempting fate in some locales, where crowded bars served as meme fodder when visuals of patrons packed into watering holes went viral (pardon the bad pun).
As noted, any new spike in cases stateside will be set against a backdrop of nascent flare-ups in China and South Korea, and would also be viewed in the context of deteriorating US-China relations.
That’s the setup for next week.
It doesn’t help that multiple “name brand” investors spent the last several days regaling the market with their view that stocks have virtually never been so overvalued (see Tepper and Druckenmiller). They could well be correct, but the effect on psychology is bad, especially coming just a little over a week after Warren Buffett’s surreal teleconference, during which the “oracle” effectively admitted he doesn’t have a clue what’s going on following a near $50 billion “paper” loss in the first quarter.
All in all, I’d be inclined to say the relatively pedestrian weekly decline on the S&P belies a considerably more downbeat outlook among investors.
In fact, according to a client poll conducted by Evercore ISI, less than 25% of respondents had any conviction that the next 10% move in equities will be up.
“Negative commentary from investing legends this week along with concerns over a second wave didn’t help sentiment”, Evercore’s Dennis DeBusschere noted, somewhat dryly.
Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute, offered a straightforward take in remarks to Bloomberg. “It’s a sobering week”, she said. “Investors have a lot to think about with regard to China [and the] data accentuates the difficulty the economy is experiencing”.
Sorry, I know the market is a “forecasting” mechanism (and is always efficient), but we’re way too rich here. Yes, we’re reopening, but businesses are going to come back slowly — and, in many, many case, not at all — and consumer psychology is going to take some time to get back to the irrational exuberance levels of early 2020 — how long is anyone’s guess. Unemployment is likely to stay above 10% for the rest of 2020 and into 2021, earnings forecasts will have to be lowered for many, many industries, and, absent an effective therapeutic or vaccine, the fall and winter will see a resurgence of infections and deaths, as people are forced by weather to spend more time indoors. Will the “markets” ignore all that and look through 150,000 deaths? 200,00? More? I doubt it. And don’t get me started on the impact of the new Cold War on markets. Sobering, indeed.
All it takes is 5 CFO’s to continue buying stock and shorts will be covered on the way up. Never has the markets fate been held in fewer hands I will conjecture.
And unfortunately, as of this morning, 2 of those 5 CFO’s are once again awakening to threats from President Balloonhead (…and they’re probably still trying to figure out just how “recession-proof” their businesses truly are).
Another one is hoping that unemployed people will continue to spend $1,000+ for a new phone every two years.
Yet another is reviewing worker safety upgrade costs that will send operating profits back to $0.
And the last one is probably doing just fine, enjoying a nice cup of Starbucks while watching the ferries cross the Sound.
Left unstated in my post is how this parallels the efforts of bankers JP Morgan? (the man) to keep the good times rolling in 1929.
Fantastic comment Prestwick! Made me laugh. But even that 5th CEO is considering the fact that he needs the 499 in the S&P 500, not to mention every Mom & Pop business in the world to keep paying their Office subscription!