May 27 - Outlook - Jim Farrish

MARKETS

NASDAQ 9,340.22 + 0.17% S&P 2,991.77 + 1.23% DJIA 24,995.11 + 2.17% GOLD 1,704.00 - 1.82% 10-YR 0.710% + 5.00 bps OIL 34.32 + 3.22% *As of market close Markets: NY Gov. Andrew Cuomo rang the bell to mark the reopening of the NYSE, and then the party started for real. The S&P at one point crested 3,000 and the Dow briefly traded above 25,000 as investors celebrated the pace of reopening. Housing: New home sales actually gained 0.6% in April, a big surprise considering...well, you know.

HOPE OF RECOVERY SENDS STOCKS HIGHER

Market Outlook for May 27th

It was tagged ‘the rally of hope’ as the S&P 500 index moved past the 3000 mark again, but failed to hold it into the close. There was some strong profit-taking in the last thirty minutes of trading. That puts the S&P 500 index up 37% off the March lows as buyers continue to fuel what I would call the FOMO rally (Fear Of Missing Out). It was a day of juggling with the dollar heading lower and the euro higher as the hope of a stronger recovery in France and other European countries showed a risk-on mindset for investors. Crude oil climbed again as the numbers show a slowing in production as promised by OPEC and others. Watching how all of this unfolds with plenty of questions still on the horizon relative to growth and recovery.

In The News:

It doesn’t make sense: CDC (Center for Disease Control) latest mortality figures… confirm what we already knew. CV-19 mortality rate is 0.26% or 0.0026. The highest rate of death by age bracket is 50-64 at 0.2%. This accounts for all deaths even those not tested. The facts are out, but we remain in a state of self-quarantining and, in some states, lockdown. Florida, Texas, and Georgia continue to show positive signs even with reopening the states.

More proposed legislation from lawmakers on who pays for the future pandemics… the legislation would create a taxpayer-backed insurance program to protect businesses from revenue losses from future pandemics and require insurers to pay a slice of the claims. The insurance industry has denied all claims place by companies for business interruption. The companies state that it doesn’t have to pay much as they do with hurricane insurance and other natural acts. There are now class-action suits filed in many states again the insurers for failure to pay claims. It will be an interesting study of how this all unfolds.

The NYSE reopened the trading floor for first time since March 20th… Albeit with fewer people, masks, strict social distancing, etc. It is good to see some people on the floor of the exchange, or at least their eyes.

SpaceX’s live stream starts today at 4 pm… The launch will make history and many will be watching… It is the first crew from US soil to go into orbit since 2011. It is the first time a private company will send astronauts into orbit. This is the final test before getting the all-clear to run crewed NASA operations. They will doc on the International Space Station and join the other three astronauts in the station to swap stories about CV-19. I am sure there will be many cheers as the program nears the next frontier in space.

Economic News…

• Home price index rose 4.4% with a strong showing for the housing sector. New homes sales were 623,000 vs 480,000 expected… much better overall.
• Weekly jobless claims rose 2.4 million with a total of 44 million claims filed since the beginning of the coronavirus.
• Philly Fed manufacturing index rose to -43.1 vs -56.6 in April when the index hit a 40 year low. Markit manufacturing flash PMI rose to 39.8 vs 36.1 previous and Markit services flash PMI rose to 36.9 vs 26.7 previous. Positive signs with the reopening.
• Existing home sales hit 4.33 million versus 5.2 million previous, but it did beat expectations of 4.2 million.
• FOMC Minutes were released and we confirm the Fed is buying assets to stabilize the economic picture, lending overnight money to solidify banks, and buying treasuries on the balance sheet.
• Housing starts fell 30% in April, permitting fell 20.8%… more depressing data from another sector.
• Retail sales were down 16.4% in April and well below expectations of -12.3%. Autos fell 12%, Furnishings down 58%, clothing off 78%, Gasoline store sales down 28%, and non-store retailers -8.4%. Not pretty and it did impact the markets on Friday.
• NAHB home builders index rose to 37 in May up from 30… seeing some activity in the sector that is positive. XHB, ITB, NAIL all rising.
• Capacity utilization was 64.9 worst ever since started tracking in 1967. This is a telling number as it relates to productivity for US companies.
• Producer Price Index fell 1.3% and well ahead of the 0.5% expected to fall. Oil prices can take credit for the biggest piece of the decline while food and liquor prices rose.
• Consumer Price Index fell by 0.8% as expected. The core CPI fell 0.4% (lowest level ever). Food prices jumped as apparel and energy fell.
• Jobs report shows a loss of 20.5 million jobs in April. 14.7% unemployment rate. Mostly inline with expectations. ADP jobs survey shed 20.2 million jobs, worst in the survey’s history.
• ISM services data was better than expected at 41.8% but still well below 50% expansion.
• The ISM manufacturing data to the mix as it was 33.4% well below the expansion levels of 50%.

The S&P 500 index closed up 36.3 points to 2991. It was up 1.2% on Monday as the index attempted to break above 3000 level. The chart shows a break higher from the topping pattern. We closed at the 200 DMA. We are looking for who will take the leadership role… Monday nine of the eleven sectors closed in positive territory with financials and industrials leading the upside. The VIX index moved to 27.5 as it finds a bottoming range and indicates indecision from investors. Watching how the move higher unfolds and if we can follow through on the upside trend.

The NASDAQ index closed up 15.6 points at 9340. The index gave back early gains adding 0.1% for the day. The close held above the 9273 resistance and holding in positive territory for the year. The NASDAQ 100 index (QQQ) was down 0.2% for the day as the large-cap stocks gave up all the early gains. The $218 level is the stop for now and watching how it unfolds near term. Semiconductors (SOXX) closed up 1% holding above the $243.50 breakout level. Technology (XLK) was down 0.1% testing the new highs. Watching how this plays out near term.

Small-Cap Index (IWM) The sector rose 7.8% for the week gapping higher and attempting to break to a new high from the March lows. The sector has been a laggard but if it can take on a leadership role moving forward it would be a positive for the overall markets. Solid break higher gaining 2.8% on Monday to show some leadership.