[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early rally got cut in half by the end of the session, when Fed Vice chairman Clarida opined that more support for the economy was needed, but he expects a rebound by next quarter, despite the current massive drop in unemployment and GDP.

He noted:

“More policy support will be needed from the Fed and possibly also fiscal policy. It just depends on how this evolves.”

“Realistically, it’s going to take some time for the labor market to recover from this shock. I do think the recovery can commence in the second half of the year.”

“The Fed will employ “forceful, proactive, and aggressive” policies “until we’re comfortable the economy is on the road to recovery, especially for Main Street. We can’t minimize that we are in a recession here.”

This was not what markets had expected, especially not the “R” word, so south we went, but the major indexes still managed to come out with some decent gains.

The fact that the markets are too optimistic was brought home by Nomura’s managing director, Charlie McElligott:

“Summer could bring hard economic data collapsing like we’ve never seen before, terrible corporate guidance, stories of pending bankruptcies, and a second wave of layoffs that will hit the white-collar sector. Rising trade-war rhetoric from the White House as a presidential election campaign heats up could present more risk.”

“That’s why I think folks are getting ready to hit the wall again, with this idea we’ve moved out of stabilization and now we’re back into the harsh reality of what this is, without having a Federal Reserve boost and no more stimulus checks until things get a lot worse.”

“The good news? The September to December period could look more constructive for equities, though much depends on if we get hit by a second wave of the virus.”

Nobody knows what’s next, but if Bloomberg’s chart is correct, the disconnect will continue until the S&P 500 snaps back down to the Copper/Gold ratio, the direction of which was spot on earlier this year.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After a couple of down days in the equity markets, a bounce-back was in order, although the conditions were not favorable. Sunday’s news that Warren Buffett had sold all his airline stocks took a toll on the futures markets, which subsequently translated into a weak opening.

The major indexes spent most of the session bobbing and weaving in the red except for the Nasdaq, which showed more staying power and ended up closing solidly in the green.

But, as we’ve seen many times in the past, a magic afternoon levitation pumped the weaker indexes to a green close, despite US Manufacturers New Orders crashing by the most ever. But as we have learned, underlying fundamentals do not matter, until one day they do.

Yet rising U.S.-China tensions with the Covid-19 blame game going on full force, along with new threats of tariffs, could not stop the afternoon ramp. And that despite Buffett’s many warnings, including his widely publicized indicator, US Market Cap/GDP, which Bloomberg presents in this chart. It clearly shows his indicator being in the danger zone.

Some good news bad news headlines, with the bad ones outscoring the only good one, did nothing to slows the market ascent. As ZH commented:

Good news…

Coronavirus Defeated By Experimental Antibody That Targets Spike Protein

But…

American Power Grid ‘Vulnerable’ To Chinese Cyberattacks, Navarro Warns

Q1 GDP To Be Revised Drastically Lower To -8%

NYT Publishes Grim CDC Projections Calling For Daily Coronavirus Deaths To Double By June

In the end, the indexes were trying to find some support, which they surely need ahead of some of the big econ announcements later this week like Jobless Claims and Unemployment rate.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After rallying all month, the major indexes stalled today, but were able to wipe out most of March’s losses for the buy-and-hold crowd with the S&P 500 sporting its best monthly return since 1987. Of course, as we know, the rebound was entirely based on Fed support, as the markets were swamped with liquidity. As a buy-and-holder, you should give thanks to the Fed’s largesse; next time you may not be as fortunate.

Analyst Marc Lasry confirmed in a CNBC interview what I have been saying for a long time:

“None of this [equity rally] is based on fundamentals, this is all about what the Fed is doing… and sooner or later reality will reassert itself.”

Joining in the chorus of reality was economist Jim Bianco:

“I understand the market has been up a lot since the March low. But what I see in the market is a retracement rally that looks very similar to the first type of rallies that you get in protracted bear markets.”

After which he added:

“We’ll revisit the 2,200 S&P low, if not make a lower low – probably by late summer.”

The economic conditions continue to worsen, as another 3.839 million Americans have field for unemployment benefits for the first time bringing the six-week total to 30.31 million which, according to ZeroHedge, is over 12 times the prior worst five-week period in the last 50-plus years. And, of course, the continuing claims are shooting up as well.

Consumer spending followed suit, as its spending collapsed by a record -7.3%, its sharpest drop since the first quarter of 1980. On the positive side, the savings rate exploded from 8% to 13.1% of disposable income, indicating, that consumers are starting to “live within their means.”

In the end, the mission was accomplished leaving me pondering if the adage “sell in May and go away,” still holds true, or will this time really be different?