Brave New World Beckons As Algos Gone Wild Erase Vaccine Hopes, Feds Try Keeping Up With Lockdown Liftings

Stocks took a pretty major blow in the final hour of trading Tuesday, when Stat News, which is focused on health-related material, reported that Moderna's phase one trial of a COVID-19 vaccine was thin on critical data according to experts, in contrast to the glow that permeated Wall Street Monday over the same trial.

When that story crossed the wires, it wiped out - in a matter of minutes just before 3:00 pm ET - all of the sparse gains on the day for the NASDAQ and S&P, and sent the Dow Industrials tumbling in a textbook case of how stock-trading algorithms distort and disrupt what used to be markets run by human beings.

Moderna (MRNA) dropped nearly 10.5% on the day, after gaining 20% on Monday, wiping out most of that one-day wonderfulness. Moderna closed Friday at 66.68, rose to close at 80.00 on Monday and finished up Tuesday at 71.67.

Easy come, easy go.

The Dow, which was in the red almost all day, dropped more than 200 points in 10 minutes. Gains on other exchanges were wiped out in one fell swoop. Such is the fickle nature of equity markets in the days of fake news and extreme momentum chasing and yield seeking.

Elsewhere, Home Depot (HD) took a $640 million after-tax hit due to its response to the pandemic, which included expanded paid time off for hourly employees, weekly bonuses, and extended dependent-care benefits. Earnings per share for the first quarter came in at $2.08, down from $2.27 in the prior-year period and $0.18 below analyst expectations. Home Depot was down 7.25, a loss of nearly three percent on the day.

Walmart blew everything away in its quarterly, reporting adjusted earnings per share of $1.18, up from $1.13 in the prior-year period. Total sales for the big box giant jumped 8.6% to $134.6 billion, handily beating analyst estimates by $3.7 billion. Comparable-store sales in the U.S. soared 10%, driven by strong demand for food, consumables, and health and wellness products.

Even those blockbuster numbers couldn't stop investors from unloading Walmart stock, which finished the day down 2.71 (-2.12%). The stock made a 52-week high less than a month ago.

Housing starts were down 30.2% in April. Building Permits down 20.8% for the most recent month.

Other than all that, there wasn't much excitement on Wall Street, which thrives on gains, no matter where they're sourced.

The major issue facing stocks and the overall economy is how well the Federal Reserve can keep up with the rolling knock-on effects from the coronavirus and government response to it. With the national lockdown winding into a roving re-opening phase, some areas are seeing business and communities getting back to some semblance of normalcy, which is now a moving target. Schools remain closed almost nationwide, while rural communities have fared much better in terms of case incidence and economic slowdown than urban areas.

Having just passed the midway point of the second quarter, there's little doubt anywhere that the blow to GDP will be tremendous. The latest estimates for second quarter GDP range from -42% to -20% and those guesses may be overly optimistic. Being that just about everything was shut down for the entire month of April and most cities - where economic activity is paramount - just beginning to open up to vehicle and foot traffic, there's a very real possibility that the current quarter could collapse by more than 50 percent. Much is dependent on the consumer mindset, which is currently a mixed one.

Having already received bailout currency from the federal government and generous additions to unemployment insurance, lawmakers in Washington are slow-footing the follow-up. House Democrats launched a $3 trillion second stimulus measure on Friday, but Republicans in the Senate are calling the bill dead on arrival, preferring to take time to assess the result from round one before committing to more fun money for small business and individuals.

One unmistakable aspect of the government's bailout efforts is the unexpected consequences from giving people who were laid off or furloughed in the early days of the lockdown movement an additional $600 a week in unemployment compensation. As it turns out, a very large percentage (up to 70% according to some estimates) of workers are making more now sitting at home collecting benefits than they were when they were gainfully employed and many of them are refusing to go back to their old jobs. Would anybody have suspected that hard-working Americans would rather stay home and cash checks from the government rather than grind out a 9-to-5 existence?

It shows, yet again, that government is always the problem and never the solution. Welcome to socialism 101 and a test run of Universal Basic Income (UBI). Alongside Modern Monetary Theory (MMT), now in live alpha testing by the Federal Reserve, the federal government and its central bank have slingshot the American public into a brave new world of radical economics, the long-term effects known by exactly nobody, though skeptics believe it will eventually result in either a worldwide depression, neo-feudalism (Max Keiser and others easily figured that one out), hyper-inflation, and a growing divide between haves and have-nots, already a chasm-sized gap.

Best bet is to be ready for all of the above by investing in hard assets, growing a garden, learning as much as possible about animal husbandry (at least chickens), and obtaining skills necessary to eek out a meager existence without the benefit of a central authority. Younger people will increasingly find such advice tiresome and boring, but the jobs and careers they were engaged in before the crisis occurred will almost certainly be greatly affected, with an emphasis on the negative.

Along those lines, unless local governments begin the process of trimming their robust budgets, cities and towns face imminent crises, the bigger ones looking at enormous needs that neither the federal government nor the Federal Reserve can fulfill.

Life will gradually return to a dystopian almost-normal in coming months. Thankfully, Summer is on the horizon, along with warmer weather and outdoor activities which should provide relief from the mask-wearing, social distancing, and fear mongering so prevalent in the current environment. On the other hand, things are heating up pretty quickly on all fronts. Expecting more disruption, displeasure, discontent, disparate government actions, fraud, fakery, and general dysfunction would be a solid frame of reference for anyone wishing to come out on the other side of this - circa 2022 - somewhat sane and intact.

At the Close, Tuesday, May 19, 2020:
Dow: 24,206.86, -390.51 (-1.59%)
NASDAQ: 9,185.10, -49.72 (-0.54%)
S&P 500: 2,922.94, -30.97 (-1.05%)
NYSE: 11,248.97, -153.26 (-1.34%)

Disturbance in the Force? Stocks Suffer Losses

Dow Components Apple (AAPL) and Home Depot (HD) sent the Dow Industrials lower, dragging the tech sector, NASDAQ and S&P 500 down with it.

With third quarter results not as good as expectations, there's pressure on US stocks, especially now that China has balked again at phase one of the proposed on-again, off-again trade deal between the globe's two largest economies.

Also weighing on equites are repeated stories of recession fears from Europe, especially in the major economies: Germany, France, and Italy. Brexit is still not resolved and there's renewed optimism among remainers that the result of the 2016 referendum might still be overturned. As Europe is one of the major US trading powers, what happens over the pond affects many companies in the US.

Bond yields dipped again, especially at the long end of the treasury curve, with the 10-year note falling to a yield of 1.74%. With the Fed now officially on hold, bond vigilantes may have their day in the sun, pushing yields down to near record levels if the holiday season doesn't produce a bounty of stock buys.

Markets are at an unusual crossroads with many swirling stories that have the potential to send equities flying in either direction. What looks like a sideways trading regimen may hold sway the remainder of the year, though more and more economists and predictors are saying that a recession in the United States is not a foregone conclusion for 2020.

Third quarter results from a plethora of companies are now in the books and though most beat expectations, such were lowered and cannot be counted on to produce a buying frenzy. A repeat of last year's monumental losses in December could reoccur, though the Fed and nefarious forces behind the scenes have the power to deflect losses and turn indices around on various dimes.

Control is in the hands of the algorithms and central bankers. Don't expect much downside as long as hope for a trade deal remains present.

At the Close, Wednesday, November 20, 2019:
Dow Jones Industrial Average: 27,821.09, -112.93 (-0.40%)
NASDAQ: 8,526.73, -43.93 (-0.51%)
S&P 500: 3,108.46, -11.72 (-0.38%)
NYSE Composite: 13,419.30, -47.05 (-0.35%)

Slipping Over the Fiscal Cliff? Stocks Dumped at End of Day

Today's late day action isn't what has been the norm for this artificially-pumped-up market for the last three-and-a-half years. Normally, at the end of the session, the markets stage a "miracle" rally out of the blue, then send futures soaring into the next day's trading.

Today was a little bit different and investors better get used to it or get out, go short or just suffer losses.

Fear of the US going over the fiscal cliff and sending the economy into a tailspin recession would be an unabashed disaster, but that seems to be more on the mind of traders than anything else these days. The problem is that the issues facing the US government aren't going away soon and aren't likely to be solved by a president who's done little in four years and a congress that's done nothing good for the American public for the past 12.

So, after taking on a 67-point loss on the Dow in early trading, stocks regained their momentum (what little there was), based largely on results from Home Depot (HD) which beat third quarter estimates and was traded up to a 12-year high on the day. As has been the pattern recently, however, the rally which took the Dow up 83 points was quickly sold off, and, in the final hour of trading, stocks took the beating they so richly deserved in the morning.

If not for the bogus midday rally (which, remarkably, was a pan-Atlantic event, taking all European stock indices up sharply at the closes of their sessions), the Dow may well have suffered a 100+ loss, but the day-trading crowd that controls all buying and selling with their wickedly fast HFT computer algos couldn't have that, so, the small loss is what got cooked into the day.

With no economic news and very few significant companies reporting third quarter earnings, the markets are stuck with waiting on the government for solutions, and, from what we've seen here and in Europe and Japan, that can be a long and painful wait.

The action continues tomorrow, with just two days left before options expiration on Friday. This current round hasn't been pretty nor profitable for many.

It was the fifth straight day in which new lows topped new highs (and by a widening margin) and the same for the A-D line being negative. all of the major indices are trading below their 200-day moving averages, with no relief in sight.

Dow 12,756.18, -58.90 (0.46%)
NASDAQ 2,883.89, -20.37 (0.70%)
S&P 500 1,374.53, -5.50 (0.40%)
NYSE Composite 8,023.23, -30.83 (0.38%)
NASDAQ Volume 1,814,780,250
NYSE Volume 3,427,123,250
Combined NYSE & NASDAQ Advance - Decline: 1773-3741
Combined NYSE & NASDAQ New highs - New lows: 56-249
WTI crude oil: 85.38, -0.19
Gold: 1,724.80, -6.10
Silver: 32.49, 0.035

What the Market Knows (and Washington Doesn't)

Monday's attempted push into higher ground was cut short by the very same forces which pushed it down to these levels in the first place: jobs, bank failures and government deficits.

The key sticking point, which the market understands (as do most chartists, but not politicians) is the 8149 level on the Dow. Why that spot is so stubborn and steadfast, not allowing movement beyond it, now that it has been violated, is that it is the interim closing low (Dec. 1) following the devastating bottom of November 20 (7552.29). Since violating this level by closing at 7949.09 on January 20, the index has tried to break out every day since. On January 21, the Dow did manage to hold on, at the close, at 8228.10, but since has closed below 8149 three consecutive sessions.

This is a troubling scenario. Not even the unexpected rise in existing home sales (+6.5%, though the median home price continues to fall) and the Conference Board's rosier outcome in the Leading Indicators (+0.3%) could keep stocks sufficiently in the green to call today's effort a true rally.

As a matter of fact, the Dow finished more than 100 points off its high, which was achieved shortly after the pair of announcements at 10:00 am. It was only a late day surge that allowed the index to finish with any gain at all. Other indices were similarly in positive territory at the close, though with marginal gains.

Dow 8,116.03, +38.47 (0.48%)
NASDAQ 1,489.46, +12.17 (0.82%)
S&P 500 836.57, +4.62 (0.56%)
NYSE Composite 5,244.67, +49.12 (0.95%)

Perhaps equally troubling was the lack of commitment as measured by volume, off sharply from last week's somewhat more spirited efforts. On the day, advancing issues finished well ahead of decliners, 4207-2354, though the gap between new lows and highs remains troubling, with new lows ahead once more, 200-16.

NYSE Volume 1,269,394,000
NASDAQ Volume 1,841,378,000

Crude oil finished the day with a loss of 74 cents, easing to $45.73 at the close after trading as high as $48.05. Gold continued its own little winning streak, gaining $13.00, to $910.70. the first close above the $900 mark since early December. Silver tagged along with a gain of 17 cents, closing at $12.11. We are beginning to be convinced that the only safe place for your cash - besides in a mattress - is in precious metals.

What the politicians in Washington don't seem to understand at this juncture is twofold: first, that the stock market will not respond blindly to their grandstanding on economic issues and postures on bailouts, stimulus packages and the like, and second, that the number of Americans out of work or underemployed has now reached crisis proportions.

Just today, another 68,000+ layoffs were announced, by titans such as Caterpillar (20,000), Pfizer (merging with Wyeth, 26,000), Sprint Nextel (8000) and Home Depot (7000). Other companies, such as Dutch financial firm ING, and farm equipment maker Deere, also announced layoffs which slice across national borders.

The US economy shed 2.6 million jobs in 2008 - the most since 1945 - and there have already been 200,000 announced layoffs this year, though the real figures of unemployed and underemployed continue to spiral to nosebleed levels. Some estimates have the total of both groups already at 13-15% of the adult labor force.

In Washington, there's plenty of pomp and posture about how to correct the dilemma, but it surely seems that the worst is still ahead as the effects of multiple retail chain store closings and the consequent defaults in commercial loan portfolios begin to ripple through the economy.

Our political leaders have yet to either catch on or level with the American people about the depth of our economic crisis, preferring to "stick to their agenda" while offering little in the way of serious stimulative effort.

The stock market is just another ticking time bomb at this point. Anybody telling you to buy stocks here just doesn't understand the fix we're in and might as well instruct you to throw money down a well.

Markets lift off the new year, stall out

Anxious traders got 2007 off the ground a day later than originally planned due to the death of former president Gerald Ford. The markets were closed on Tuesday, but made up for lost time on Wednesday morning, driving vigorously into the positive in early trade. The Dow reached an intra-day all-time high of 12,630.34, but stocks pulled back through the afternoon, especially after the release of the minutes from the Fed's December meeting. The Dow closed up just over 11 points higher. The Nasdaq was up a nominal amount, while the S&P 500 and NYSE Composite finished slightly lower.

The minutes revealed that certain members of the FOMC were concerned that the economy was still expanding at a pace that might induce inflation and traders saw this as a sign that the Fed may still be pondering rate increases.

This kind of reverse-engineered thinking normally occurs when the markets - and the economy - are at pivot points and questioning future direction. If stronger growth is actually on the horizon, that should be good for stocks, but the consensus opinion seems to think that rate increases would be a worse outcome, so it's back to head-scratching and crystal ball gazing.

The biggest news of the day and the stories that really moved stocks early were the forced resignation of Home Depot (HD) CEO Robert Nardelli and a sizable drop in the price of crude oil, which fell below $60/bbl. to end the day at $58.32.

While Nardelli will retire with a handsome severance package worth more than $210 million, the price of oil may not have such a rosy future. Despite repeated and continuing efforts to convince the public that crude supplies are extremely tight, production cuts by OPEC (1.2 million barrels per day announced in November and another 500,000 cut planned for February) and the warm winter in the US Northeast are pushing prices closer to 3-year lows.

With more than they usually need to consider, investors are facing a slow-growth economy (retail for December was not as good as expected), lower oil prices and a Fed concerned with inflation. Two of those three are good, and it can be argued that a cooling off period for the economy is not only welcome but overdue.

The real issue is valuation, which is at somewhat ridiculous levels for entire classes of stocks. Corporate profits have been exceptional during the long bull market and it would be foolish for investors not to take some of their gains off the table soon in hopes of getting back in later in the year.

From the looks of things, being out of this market in the first half of the year may be the wisest investment decision of all.