[Chart courtesy of MarketWatch.com]

1. Moving the markets

Despite weakness in the futures markets, the computer algos went to work this morning by pushing the major indexes to another green close with the S&P 500 gaining around +1.4%, while crude oil dumped -23%.

We saw two assists supporting equities.

One came from a giant short squeeze causing US stocks to surge, as Bloomberg’s chart shows. The other one, of a more global nature, came from BoJ’s promise to buy more assets, which pumped global markets, with especially the Nikkei being on fire.

This wiped out last week’s losses, as traders’ optimism about loosening restrictions took center stage, despite the usual warnings that such early moves could be premature and backfire.

The busiest week of the earnings season has started with negative news being widely expected, which is another reason why markets are in rally mode confirming once again that bad news can be good news. But for how long?

Guggenheim’s CIO Scott Minerd chimed in by saying:

“The central bank will never be able to get back to normal. The Fed’s balance sheet has expanded from $4.5 trillion to $6.6 trillion in just about a month, and it is likely on its way to over $9 trillion soon.”

With ZeroHedge concluding:

“And there you have it: the US is now (and has been for the past decade) just a more dignified form of USSR-style central planning, one where prices are set by decree and a decline in asset levels is prohibited for one simple reason: with financial assets over 6x global GDP, any crash in markets would result in a depression that would promptly spiral in social collapse.”

Words of wisdom indeed. In case you were wondering, this is exactly why markets are totally disconnected from any reality. Even the real economy, as demonstrated by crude oil, is disintegrating at the same time as earnings expectations are dumping, and not just in the US but globally as well.

This week is loaded with a variety of events, any of which could force the markets in either direction.   

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Optimists got a slap in the face, as reports of the greatly hyped experimental coronavirus drug Remdesivir, by Gilead, delivered disappointing results in clinical trials. That was enough of a downer for the markets to buckle, and the early gains were slowly wiped out, despite attempts to revive the bullish theme.

Looking at the chart above, this must have been one of the slowest days in recent weeks, with the major indexes ending the day just about unchanged.

Not helping the mood were reports from Europe, as their much-anticipated summit turned out to be a total flop with no agreement on a recovery package reached, as four “frugal” EU countries opposed any grants.

Then we learned that the housing market is not doing well, although that comes as no surprise, as New Home Sales crashed by 15.4% MoM, the biggest drop since July 2013, as ZeroHedge noted. This was also the biggest decline for March—ever!

Another 4.427 million Americans filed for first time unemployment in the last week bringing the four-week claims total to 26.5 million jobs lost. If you look at the “initial” and “continuing” claims, as per Bloomberg, it shows the highest level of continuing claims ever.

That means, we have now exceeded the jobs created in the past 10 years by the number job losses in the last 5 weeks. Stunning! Yet, current market levels in no way reflect those facts but, at least for today, equities did not rally into the close.

Summing up the day using the Good, Bad and Ugly analogy was Zero Hedge:

1. The Good – Stocks are up (all it took was a few trillion dollars)? Oil is up (all it took was threats of war)?
2. The Bad – COVID cases are up, COVID deaths are up (and Gilead’s drug is a dud)…
3. The Ugly – Over 26 million Americans have now filed for unemployment benefits in the last 5 weeks.

A three-way-standoff between ugly real economic data, ongoing global lockdowns, and the Fed’s “whatever it takes” asset lift-a-thon…

What’s next? Will more bad news be good news again?

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Snapping A 2-Day Slide

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After a 2-day slide, the markets found some footing via temporary stabilization of the oil market, some better-than-expected earnings reports, and anticipation that Congress will produce another stimulus package, maybe this time without much bickering.

Getting things started, and preventing oil from slipping further, were announcements by the administration to shoot at Iranian gunboats should they interfere again with U.S. Navy operations in open waters.

A little saber rattling like this had the desired effect and put oil prices back on a northerly path, at least for the time being. However, troubles in that sector are sure to continue next month at the expiration of June futures.

In terms of market direction, plenty of opposing views exist with 2 big boys now engaged in a tug-of-war. On one side, we have JPM’s math whiz Marko Kolanovic, who is favoring new market highs by 2021, and that in the face of plunging earnings expectations of 30% or more. On the other side, we have billionaire investor Paul Singer, who noted that “our gut tells us that a 50% or deeper decline from the February top might be the ultimate path of global stock markets.”

I tend to lean more towards Paul’s assessment with the recent rebound off the lows being reviewed by Citi’s Robert Buckland like this:

“All bear markets include false rallies, often associated with supportive monetary policy. But markets only find a sustainable base when there are signs that cheap money is feeding through into the real economy, rather than temporarily supporting asset prices.”

Most economic numbers are so bad that I don’t need to regurgitate them, but I found it interesting, yet not surprising, that the US Consumer Comfort signaled an environment that clearly demonstrates an obvious divergence from Wall Street to Main Street.

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