Stocks Stabilize On Hopes Of Fiscal Stimulus

Markets Are Normalizing

Markets are finally normalizing. That sounds weird because the 1 month and 3 month treasury bills fell to slightly negative yields. However, it's because Wall Street is starting to get its arms around COVID-19 and markets are moving less wildly. VIX was actually up on Wednesday as it rose 2.28 to 63.95. It was up because there was volatility at the end of the trading session. 

There was some uncertainty over whether the Senate would pass the stimulus bill because Republicans didn’t want to have some workers making more money at home than at their jobs. That’s because the bill includes an extra $600 per week in unemployment insurance for 4 months. And there ended up being a Sasse amendment to the bill to cap unemployment insurance benefits. That failed as the vote was 48-48. The vote on the stimulus passed easily.

Investors didn’t know it would pass this afternoon, so they sold stocks. The market had already been up 15.56% from the bottom, so some selling pressure wasn’t surprising. Therefore, the S&P 500 fell 3.41% in the last 55 minutes of the day. Some are saying the market needs to retest the lows. Personally, I don’t agree with that, but if it does, I will be buying as much as I can. 

That would be a huge buying opportunity. Some are saying the Thursday jobless claims report will send stocks lower. It will have come out by the time you are reading this, but let the record show the market will likely look past it. It will be a terrible report, but everyone knows it will be bad.

If the trend continues, we will have a bad day. As you can see from the chart below, Thursday has been the 2nd worst day of the week this year. Tuesday has been a turnaround day as the past 3 Tuesday’s have had massive gains.

Details Of Wednesday’s Action

Considering how strong the rally was on Tuesday, Wednesday’s small rally was a big positive. This was the first back to back streak of gains in 28 days which tied the record high. That record had been hit 5 other times. 28 is the magic number. The Nasdaq was down though as it fell 0.45%. 

Russell 2000 was up 1.26%. Dow did the best as it was up 2.39% because Boeing was up an astounding 24.32%. That’s a big cap name trading like a micro cap stock. This is par for the course in March, which has been the wildest month I’ve ever seen in markets.

Sector performance was very divergent unlike Tuesday where everything was up. Energy and real estate sectors were up 4.49%. Industrials were up 5.29% because of Boeing. 3 sectors fell. Consumer staples were down 0.17%, tech was down 0.28%, and communication services were down 1.59%. 

Facebook stock fell 2.96%. Zoom was actually up 2.17% which is surprising because we expect this stock to selloff in rallies because ‘risk on’ trading means people are optimistic about COVID-19. I still think it’s a huge bubble stock.

This wasn’t the first time we’ve ever had negative rates on the short end of the curve. 3 month bill has a yield of -3 basis points and the 1 month bill has a yield of 1 basis point. They won’t stray far from 0% because the Fed funds rate is at zero. In other words, the fact that they went negative isn’t that big of a deal. 

If the 10 year yield fell negative, it would be a huge deal, but I don’t see that happening within the next few years. The curve is normal. That’s a good sign for the economy after this short-lived recession ends. On Thursday morning, the 10 year yield fell 7 basis points to 79 basis points. It has been much more stable in the end of March than it was in the end of February.

Update On Covid-19

Most of the trends COVID-19 has been experiencing continued. Italy continued to stabilize, America continued to increase, Spain continued to look terrible, and testing increased in America. The one change was that the number of cases in NYC spiked sharply. Let’s see if that’s a new trend compared to the prior 4 days.

There have now been 472,820 tests. As you can see from the chart below, there number of tests rose from 65,105 on Tuesday to 74,384 on Wednesday. Spain looks like a disaster as there were 656 deaths on Wednesday. At least that was down from 680. There were 7,457 new cases which was up from 6,922. 

Spain has had a high death rate which makes it scary that the number of cases is still increasing. Italy has been stabilizing. We're looking for the number of new cases per day to start falling in the next 7 days. There were 5,210 new cases which was down 39. Peak was March 21st. That shouldn’t be usurped. Number of deaths fell from 743 to 683.

America is behind Italy by about 2 weeks which means the number of new cases will likely increase every day until early April. On Wednesday there were 13,355 cases. America will soon have more cases than China. Good news is the death rate in America has been way lower than Spain and Italy. 

Number of new deaths rose from 225 to 247. Worst news was that the number of new cases in NYC rose from 2,478 to 4,414. Cases are beginning to overwhelm the healthcare system as there has been 20,011 in total. We're not sure if this spike will continue or if it was a one off. That’s the difficulty with dealing with data on a day by day basis. 

New York City is a hotbed for this virus. Personally, I’m expecting the city to reopen in May, but will push back that forecast if the number of new cases per day spikes in the next few days.

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