It’s positive to see a little euphoria again this morning, but how long can it last? The next Senate vote on a fiscal package seems near, but any delays or failure could potentially put things right back where they were yesterday, at three-year lows.
This may sound cynical, but investors can’t really be blamed for feeling that way. Every rally attempt since mid-February got relentlessly pounded into the ground either the same day or a day later. We need to see a range established for the major indices. It can’t be emphasized enough. When you have these wild swings, the market tends to come back to where it was pretty quickly.
It’s also still unclear whether the U.S. Senate can agree on a fiscal stimulus package. It’s failed twice the last two days. Stocks plunged to session lows late Monday when the Senate couldn’t get things done and investor hopes got dashed.
And speaking of uncertainty, the allocations within the package—between infusion into the “real economy” versus that earmarked for corporate sector support—might also determine how stocks and sectors react to the final package. There will likely be winners and losers.
Basically, the market appears to be signaling that a fiscal stimulus package—now said to total $2.5 trillion—would be welcomed by investors. The hope is that this money can help make up for some of the business lost as everyone stays stuck at home and with restaurants, sporting events and theaters shut down. The longer Congress waits, some analysts say, the more damage to the economy.
This morning’s rocket launch to limit-up in pre-market trading, along with a 5% jump in crude prices, could also reflect some spillover optimism from the Fed’s move yesterday to shore up credit markets to ensure the funding of American businesses.
Also providing a boost is news out of China that the lockdown on Wuhan will be lifted April 8. That said, even if things are improving in China and a fiscal package gets passed in Washington, the market is probably going to continue to be sensitive when investors hear about additional cases of the virus.
It’s interesting to see gold up this morning even amid the pre-market equities rally. One thought is that the dollar is down a little, and that might be providing some support to crude and gold. Bond yields also rose this morning, with the 10-year Treasury yield above 0.8%.
Nike Could Provide Run-Down on Asian Consumer
While the rally isn’t certain to continue, one certainty today is Nike Inc. (NYSE:NKE) reporting fiscal Q3 earnings. That’s scheduled for after the closing bell.
The company is expected to report a 12% decline in earnings, according to research firm FactSet, but a sales rise of 2%. NKE has re-opened most of its stores across Asia, but closures affect most of the West, including the U.S. and Canada.
As we noted here yesterday, investors might want to give the call a close listen for any clues about how sales are going since stores re-opened in China, and for a sense of whether there’ll be pent-up demand if the virus loosens its grip here.
Like the rest of us, NKE executives don’t know how long this situation will last, so it’s unclear what it or any company can really say now about the near future. Some companies—not necessarily NKE—might present separate guidance paths that account for best-case, middle-case, and worst-case pandemic scenarios. We’ll have to wait and see.
Volatility Sending Signals?
There were some signs of life early this week despite the market sinking on Monday. First, volatility didn’t exactly calm down on the week’s first trading day, but it did stay well below recent peaks for the Cboe Volatility Index (VIX) and actually moved lower. Also, as one analyst noted, the nearby VIX futures contract lost some of its heavy premium to contracts further out, possibly a sign of investor fear dipping a little.
Usually the front-month VIX contract sees the bulk of the buying interest early on when the market hits the skids and investors flock to it seeking what they hope could be protection. The front month got such a big embrace the last few weeks that the curve has been inverted. If the VIX curve starts flattening, it could be a sign of more possible stability for stocks, but one day isn’t a trend. VIX futures (/VX) fell further early Tuesday.
Sector Snapshots: Semis, Cloud, Retail, and Homebuilders
At that point, if earnings projections don’t look as bad as the market seems to be pricing in now, maybe there will be a reassessment. Right now, people are doing what they often do at times like these: Assuming the worst.
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