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What Did the Fed Do? (And Why Are Stocks Down Again)

What’s in Today’s Report:

  • What Did The Fed Do And Why Are Stocks Down?
  • What to Make of This Market Now? (Buy/Sell/Hold)
  • Two Key Indicators to Watch This Week

Futures are limit down this morning despite the Fed cutting rates to 0% and restarting its QE program.

On Sunday night the Fed cut rates to 0% and announced a new 700 billion dollar QE program, along with other measures designed to boost liquidity.

Coronavirus news over the weekend wasn’t good as case counts continue to rise, especially in Italy.  That country is the new center of the coronavirus outbreak.

Today all eyes will be on the bond market.  Treasury yields need to stay down, and if the price action in LQD isn’t too bad, stocks can rally out from these early lows.  Economically, there is a notable report this morning,  Empire Manufacturing Survey (E: 4.8), as it will give us the first look at juts how bad economic activity has been in March.

What Makes It Better and What Makes It Worse

What’s in Today’s Report:

  • Why Did Stocks Drop 10% Yesterday?  (It Wasn’t Coronavirus)
  • What Makes It Better (Four Factors)
  • What Makes It Worse (This Is Important)
  • Key Support and Resistance Levels to Watch

Futures are sharply higher as stocks rebound from yesterday’s historic collapse.

Most of the morning rally is just a typical oversold bounce, although there is a lot of “chatter” that global governments are planning to unveil economic stimulus plans over the weekend.

In the U.S., expectations are rising for an economic stimulus plan to be announced as early as this morning.  This needs to happen by the open on Monday and the plan needs to be substantial, because as we explain in the issue, this crisis has morphed into a crisis of confidence in  Washington’s ability to support the economy, and that’s the real reason stocks went into free fall yesterday.

Today all eyes will be on Washington, because the market is expecting a substantial economic relief package from Congress, and if we don’t get one by Monday (or it’s small and ineffectual) then we should all brace for more volatility.

The Panic Worsens

What’s in Today’s Report:

  • What Trump’s Speech Means for Markets (Not As Bad As The Market Reaction)
  • March Economic Breaker Panel (Important Insights)
  • Is It Time To Panic?

Apologies for the slightly tardy delivery.  A lot has happened since the close.

Futures are limit down once again as markets were disappointed by President Trump’s speech and proposed economic initiatives.

President Trump announced a travel ban from Europe in an effort to curtail the spreading of the disease, as well as several economic policies aimed at stimulating growth including deferral of income tax payments, more SBA loans, and paid sick leave.  All of these initiatives will help the economy, but none are a silver bullet for coronavirus, and as such the market is reacting with short term disappointment.

Econ Today: Jobless Claims (E: 216K), PPI (E: 0.5%). There are no Fed speakers speak today however the Treasury will hold a 30-Yr Bond Auction at 1:00 p.m. ET.

Looking forward, this is a market gripped in panic so we’ll continue to watch the headlines, and we need some good news to break the negative feedback loop in the form of positive corporate commentary or optimism on the transmission of the virus, but those types of headlines have been hard to come by lately.

Tom Essaye Interviewed with TD Ameritrade on March 10, 2020

Tom Essaye interviewed with Oliver Renick from TD Ameritrade to discuss the market, oil, coronavirus, and much more. Click here to watch the full interview.

TD Ameritrade Interview

Market Multiple Update

What’s in Today’s Report:

  • Market Multiple Update

Futures are trading higher this morning while international markets were mixed overnight as investors weighed stimulus hopes against the continued spread of the coronavirus.

As cases of COVID-19 topped 90,000, the RBA was the first central bank to cut its official “cash rate” to a record low of 50 basis points overnight largely due to the outbreak.

Economically, the Eurozone HICP Flash for February and Unemployment Rate for January both met expectations overnight at 1.2% and 7.4%, respectively.

Today, there are a few potential catalysts to watch including one economic data point: Motor Vehicle Sales (E: 16.8M) and one Fed speaker after the close: Evans (6:30 p.m. ET), while politically, “Super Tuesday” will be in focus.

The coronavirus outbreak remains the single most important factor for global markets right now, however, and if there is a significant rise in reported cases of deaths related to the virus, this week’s risk-on money flows could begin to fade and potentially give way to more volatility.

Conversely, any news regarding emergency stimulus measures, especially by G7 nations could help this week’s rally extend higher.

Where Do Markets Go From Here?

What’s in Today’s Report:

  • Where Do Markets Go From Here?
  • Weekly Market Preview:  Coronavirus news first, but it’s an important week from a data standpoint too
  • Weekly Economic Cheat Sheet:  Why Wednesday is the Most Important Day of the Week

Markets are trying to stabilize and futures are down modestly, but they have been volatile as futures have been down 1% and up 1% before trading back closer to flat.

If there’s a “reason” for the attempted rebound, it’s the surging expectation for a globally coordinated central bank response sometime later this week (possibly a 50 bps cut).

Coronavirus news remained negative in aggregate as cases increased in the U.S., although the news is no worse than what the market’s priced in last week.

Economically, the Chinese Feb. Manufacturing PMI imploded to 35.7 vs. (E) 46.0, but that wasn’t a surprise.  The data from the EU and Britain was solid.

Today the market will be driven by the latest coronavirus headlines, but there is an important economic report, the ISM Manufacturing PMI (E: 50.4), and a better than expected number would give the market a needed confidence boost.

Tom Essaye Interviewed with Yahoo Finance on February 28, 2020

Tom Essaye intereviewed with Brian Sozzi and Alexis Christoforous from Yahoo Finance to discuss the debate on whether the Federal Reserve must hold an emergency meeting this weekend and cut interest rates to arrest the coronavirus stock market crash.

Click here to watch the full interview.

Tom Essaye Interview with Yahoo Finance

What to Make of Yesterday’s Selloff

What’s in Today’s Report:

  • What To Make Of Yesterday’s Collapse
  • Yield Curve Update (Steepening But for the Wrong Reasons)

Futures are down sharply  but well off the overnight lows as markets digest yesterday’s collapse in stocks.

Coronavirus continues to spread (new cases in Nigeria and New Zealand) but China announced the fewest number of new cases since January 23rd, so there is progress occurring.

Economically, Japanese Retail Sales (-0.4% vs. (E) –1.0%) and Industrial Production beat estimates.

Coronavirus headlines will continue to dominate trading and today will be another volatile day (Friday’s in corrections always are), but outside of coronavirus markets will be focused on the Core PCE Price Index (E: 1.8%), Consumer Sentiment (E: 100.9) and one Fed speaker Bullard (9:15 a.m. ET).

Tom Essaye Quoted in Barron’s on February 24th, 2020

And don’t forget about the Nevada caucus, where Bernie Sanders scored a big victory. “Politically, Sanders won the Nevada Caucus with more than 40% of the vote, implying his base is bigger than thought, meaning he might be a more…” writes The Sevens Report’s Tom Essaye. Click here to read the full article.

China subway

 

Coronavirus and the Bond Market

What’s in Today’s Report:

  • Bond Market Update: Bull Steepening and New Record Lows in the 10-Year Yield
  • Coronavirus Facts and Fears

U.S. stock futures were volatile overnight, reversing from tentative gains to losses as global shares continued to decline amid the evolving coronavirus outbreak situation.

News regarding COVID-19 remained largely the same overnight; the outbreak in China continues to be contained but is spreading more rapidly in other regions including the EU.

The 10-Yr yield is encouragingly stabilizing this morning while the 2-Yr continues to decline as traders are now pricing in 65% odds of a Fed rate cut by April due to the coronavirus outbreak’s negative effects on the economy.

Today, coronavirus headlines will continue to dominate the news and markets however, there is one economic report to watch: New Home Sales (E: 708K) and two Fed officials are scheduled to speak: Kaplan (9:35 a.m. ET) and Kashkari (1:00 p.m. ET).