“There are some embers flaring up in a few places”, Kevin Hassett said Friday, in remarks to Fox News about a possible second wave of COVID-19. He called trends in Arizona and South Carolina “some cause for concern”.
Investors, meanwhile, seem “concerned” with Texas, and specifically with rumblings about a reinstated stay-at-home order in Houston. Friday’s data showed infections in Florida rising 2.8%, the largest daily spike since May 1.
Although US equities managed to close the week on an upbeat note, “some embers flared up in a few places” (to hijack Hassett) over the course of the last several sessions. Friday’s gains weren’t enough to save this from being the worst week since the height of the panic in March.
The VIX obviously rose sharply, and investors were reminded of how quickly the tide can turn when the dominoes start tipping (mixing metaphors).
Small-caps outperformed on Friday, and the curve unwound some of Thursday’s dramatic flattening. The curve is dictating the under-the-hood action in equities, and this was another week defined by extreme factor volatility. Note the manic “EKG” in the figure.
“Factor volatility has been unprecedented, and the recent momentum crash erased four years of gains in only three short weeks”, JPMorgan’s Marko Kolanovic said Friday, referencing the dramatic unwind in secular growth and other “slow-flation” winners that corresponded to the surge in cyclical value which unfolded prior to this week’s stumble.
This was a traumatic week for banks, which fell nearly 11%.
Oil’s best run of weekly gains finally came to an end, as jitters about the economy, supply concerns, and the generalized risk-off tone halted what has been a truly incredible rally from the historic lows.
The longest streak since April of 2019 is now history.
According to many analysts, the future for crude now depends on the evolution of the virus. OPEC+ has done what it can and there are ongoing signs that demand is picking back up materially.
The latest Baker Hughes data showed the rig count falling another 7 to just 199. That takes the collapse over the course of 2020’s oil crisis to 71%.
Another data point from Friday that’s worth a mention comes from Caterpillar, which reported the largest monthly drop in machine sales in a decade.
Obviously, the company is a bellwether and it didn’t help that an analyst from BMO cut the shares to hold on concerns about a “catatonic recovery” – not exactly inspiring language.
“[The] April/May contrarian trading positives of Pandemic, Positioning, Policy [are] fading but [it’s] too early for [any] Big Short, as positioning is not bullish, and Policy continues”, BofA’s Michael Hartnett said, in the latest edition of his popular “Flow Show” series.
In other words, with positioning still skewed bearish and policymakers inclined to support the market both verbally and through outright intervention, it’s too soon to think about taking an “all-in” stab on the short side.
“I am not giving up on my bearish call. [Thursday] was not the low of this correction”, Kevin Muir (formerly head of equity derivatives at RBC Dominion, and better known for his exploits as “The Macro Tourist”) said, in a Friday note. “This morning’s gap higher gave another chance to get even shorter [but] at the same time, there are opportunities to pick away at some long positions at great technical levels”, he added.
Meanwhile, Larry Kudlow told “Fox & Friends” that when it comes to COVID, “there is no emergency”. “There is no second wave”, he insisted. “I don’t know where that got started on Wall Street”.
Earlier in the week, Kudlow told a reporter that he “doesn’t believe there is systemic racism in the US”. Pressed, he said simply: “I’m not going to go into a long riff on it”.
Yes, it is generally inadvisable for old, rich, white guys in suits to go on long riffs about how there’s no systemic racism in the US.
He should kill two birds with one stone and just say “it’s well contained” to address all questions about COVID and racism. Nice and simple. Maybe avoid any “pretty close to airtight” language, however.
Larry is speaking to an audience of One. No one else believes him.
My high school writing teacher taught us that there are two phrases one should never use to start a sentence: “I don’t think ….” or “I don’t know….” Larry didn’t have such a good teacher, apparently.
Even without a significant second wave, the economy is going to suffer.
Fear of covid and fear of losing income will keep the economy in very, very low gear.
Beware VaR, Algo, etc impacts on markets which are used by fundamental guys to justify positioning. Markets based on deep knowledge have some interesting insight but tail wagging the dog movement is about as telling as the stars.