Biggest Dow Gain Since 1933 (5th Biggest Ever)

Insane Tuesday Rally

This market never ceases to be interesting as COVID-19 has caused a huge spike in volatility unlike anything most have in our lifetime. This is similar to 1929 except this won’t lead to an elongated depression. It’s possible that Q2 GDP growth is worse than the Great Depression, but there will be a much quicker rebound. I’m betting on the fact that every scientist in the world is working on a cure for this and that the virus appears to be contained in South Korea, Japan, and China. 

There’s some hope that the warmer weather in the summer will help. By the fall if it comes back, the government and health care industry will be much more prepared to deal with it. Plus, since all the scientists are collaborating at record speed, there could be a few therapies developed in the next few months to lessen its impact if it comes back.

Tuesday had another face ripping bear market rally. S&P 500 was up 9.38% which was the 10th biggest gain since 1926 as you can see from the table below. We are getting to the point where having the biggest move of March is a big deal. Stocks rose 9 basis points more than they did on March 13th

Dow was up an astounding 11.37% which was its 5th biggest gain ever and its biggest gain since 1933. It’s going to be very difficult to end the streak of days without back to back gains if the market keeps having full year sized gains in 1 day. It will be very tough for stocks to rally on Wednesday. Bulls should be happy with a loss of less than 3%. As the left side of the table below shows, 3 of the biggest daily declines since 1926 have occurred in March 2020. Hopefully, there won’t be any more.

Details Of Tuesday’s Insane Rally

Nasdaq increased 8.12% and the Russell 2000 was up 9.39%. A most interesting part of the day was that the VIX rose 8 basis points to 61.67. It’s not surprising because we need a boring 1% gain to lower the VIX significantly. This rally is the market acting like it’s still in the 1930s or 2008. This likely isn’t the market’s bottom, but this rally isn’t consoling. Fed’s action and the slowing number of new cases in Italy is the most consoling right now.

Action in some stocks was incredible. Chevron stock rose 22.74%. This isn’t a micro-cap. It’s one of the biggest energy producers in the world. The firm cut its guidance for 2020 capex from $20 billion to $16 billion. It reaffirmed its dividend which is not a surprise because the firm has the best ability to pay its dividend out of the major energy producers. Also, it suspended its $5 billion buyback. 

It’s no surprise the energy sector was the best performing one on the day as it increased 16.31%. Utilities sector was up 10.94%. Con-Ed stock was up 7.75% after crashing in the prior 2 sessions. 2nd best sector was the financials which rose 12.75%. This was such a great day that the worst sector was up 4.84% (consumer staples).

Weak balance sheet heavily shorted stocks did the best. Worst companies rose from the ashes of this bear market which makes sense because they have the most to lose if the economy gets worse. When a company with a weak balance sheet faces a recession, its stock can have a downward spiral towards zero. 

Weak balance sheet stocks outperformed the strong balance sheet firms by the most since November 2016. As you can see from the chart below, the most shorted stocks outperformed the market by the most since 2013.  

mostshorted CHART

COVID-19 Update

We've been positively surprised by the latest data we’ve seen on COVID-19. And we can see the number of daily cases in America start to stabilize in the next 2 weeks. We will be looking at the U.S. economy opening in late April if this optimistic scenario plays out. The pessimistic scenario is that the economy will be shut down for 12 months until a vaccine is created.

As you can see from the chart below, the number of tests in America on Tuesday fell slightly, but the percentage of tests yielding a positive result fell as well which is a good sign. We should expect to see the number of daily tests increase over the next week and for the positive rate to fall. There have been 367,710 tests in total. More tests there are, the quicker people will be able to go back to work.

Results out of America weren’t bad compared to what many were expecting. We’re seeing the number of cases per day fall in New York City. In the whole country, there were 11,089 new cases which was up from 10,168. We were expecting to see hyperbolic growth until early April. But we haven’t seen that in the past 2 days. Let’s wait for 3 more days of data before we can suggest the situation has stabilized.

Most are confident the situation has stabilized in Italy because the number of new cases hasn’t surpassed the March 21st high. The number of daily new cases rose from 4,789 to 5,249. Bad news is the number of deaths rose from 601 to 743 which is only 50 below the record high. There have been extreme measures taken to slow the spread in Italy. People are being forced to stay inside. I can’t imagine the number of new cases not falling further over the next week.

As you can see from the chart below, the betting market puts 57% odds of there being over 1 million cases in America by April 15th. Personally, I would bet against this. There will likely be under 1 million based on the recent growth rate and the actions taken to shutdown about 50% of the population. Currently, there are 54,867 cases. 

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