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Trading a Record "Cannonball Run" Global Week Ahead
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Stock traders enter this Global Week Ahead with the S&P500 at a critical juncture.
That key U.S. large cap stock benchmark bounced to 2800, after gaining back +12.1% last week. This is close to a 50% retracement. The 12-month low is a tad under 2,200. The high is a tad under 3,400.
Added to that, this Global Week Ahead begins Q1 earnings season. Given the vast uncertainty, company conference calls will be especially important.
Noted firms in the Zacks major bank industry kick it off.
Our big bank industry includes JPMorgan (JPM - Free Report) . It reports before the market opens on Tuesday, April 14th. Bank of America (BAC - Free Report) reports on April 15th and so does Citigroup (C - Free Report) .
Big bank shares have bounced back from the March 23rd lows. But their retracement has lagged the broader market.
As a result, while the S&P500 index was down -13.6% YTD through Friday, April 10th, the KBW Bank Index (with 24 names) was down -33.6%.
The price to book ratio on that index? It is below one at 0.86. The P/E ratio? It is 8.0.
At this juncture, any investor should have a list of questions:
Have we seen the bottom in stock prices?
When will we re-start the economy?
Is it time to start buying stocks?
If so, which ones?
Chuck Carnivale of the Dividend Kings, writing in Seeking Alpha, offered a solid answer:
“So, what is an investor to do?
“For me personally, I’m acting like Santa Claus — I’m making my list and checking it twice. My rational mind says that quality is supreme in this environment, and in that same regard cash is king.
“Therefore, I am actively conducting research on the highest quality companies that I can identify and find. Then I am building lists of high-quality stocks that fit various investment objectives.
“For example, I have put together a list of dividend growth stocks as well as a list of pure growth stocks that I believe will not only prevail during this crisis, but perhaps even prosper.”
To gauge that, will the future macro-economic path resemble one of these letters: V, U, L, or W?
Good news first.
Pre-COVID-19 macro reports continued to show strength.
U.S. job openings were near highs. The ratio of unemployed persons per job opening had been 0.8 in Feb. 2020. This ratio wasn’t above 1.0 going back to late 2017.
U.S. consumer inflation data was low on core (+2.1% ex-food and energy) and negative for the headline (+1.5% y/y, with -0.4% showing up for March).
Then, the load of bad news…
Everything else plummeted.
(1) To start, the NY Times wrote that the nation’s epically uncrowded highway system allowed a white 2019 Audi A8 L sedan with extra fuel tanks to depart a NYC garage and arrive in LA less than 27 hours later.
That’s a record — for the sprint known as the “Cannonball Run.”
That car clocked an average of 103 mph. Google Maps says 41 hours is the average.
Traffic levels have dropped more than -90% in some major cities, and at least -50% nearly everywhere.
(2) The number of scheduled flights in the last week of March was almost half that of the same period a year ago, according to OAG, a data consultancy.
In the first week of April, air travel hubs such as the U.K., Hong Kong and Switzerland experienced declines of more than -90% in their flight numbers, OAG said.
Globally, flight numbers are down -70% so far this month, according to the International Air Transport Association.
Some aviation analysts now predict: It could take up to three years for the industry to return to the traffic levels of 2019.
(3) Cruise stocks quite literally sell like they are going out of business. Carnival Corp. (CCL - Free Report) , Royal Caribbean Cruises (RCL - Free Report) and Norwegian Cruise Line Holdings (NCLH - Free Report) are off -76%, -70%, and -78%, respectively, YTD, and trade at 0.3x, 0.7x and 0.4x book value. No cruises until Q4, and then what about sales?
(4) WTI crude oil prices fell on Monday to $23 a barrel, a day after OPEC+ oil producers reached a historic (but voluntary) agreement to cut oil production.
Analysts at Goldman Sachs and elsewhere said the moves were “too little, too late.”
(5) The decline in U.S. rail traffic has been the largest since the Great Recession.
(6) Nearly a third of U.S. apartment renters did not pay rent in April.
(7) U.S. mortgage applications dropped -17.9% from the prior week. They now track the weakest years in recent history.
(8) Michigan consumer sentiment dropped to 71. This was the lowest reading since 2011 and the largest monthly decline in history.
One U.S. specialty retail analyst added: Full closures likely run through the end of May, coinciding with furloughs for all part-time and up to 50% of corporate staff.
Across the board, U.S. restaurant sales should be down -70% in Q2. Maybe -35% in Q3 and -20% in Q4?
(9) Last week, U.S, initial jobless claims hit 6.6 million, down from the prior week’s 6.9 million, but worse than the expected 5.0 million. With the rapid shutdown of so much of the economy the spike in claims is not really a surprise. We simply have no background to evaluate the large numbers, or how long the surge might last.
Most layoffs are described as temporary. Many are covered by increased unemployment insurance under the CARES Act.
(10) Over one-quarter of the U.S. economy has gone idle.
Top Zacks #1 Rank (STRONG BUY) Stocks
The choice for stock pickers looks bifurcated.
Very short term? Play “the cannonball run” regime. That means buy defensive names, and/or steer clear of stocks altogether.
Or bet on a big cyclical recovery – aka the “long-term” -- and strap in tightly.
Next are three examples. These stocks lay out the current landscape well.
Koninklijke Philips N.V (PHG - Free Report) : This is a $42 a share stock with a market cap of $37 billion.
Shares used to price at $48 pre-shutdowns. I see a B for Zacks Value, and A for Zacks Growth, and an A for Zacks momentum.
Zoom Video (ZM - Free Report) : Remote video is the shutdown game. This company is leading the way. It’s a $124 stock currently, with a market cap near $35 billion.
Entering 2020, shares traded near $70 each. I see a Zacks Value score of F, a Zacks Growth score of D, and a Zacks Momentum score of D.
The Clorox Company (CLX - Free Report) : This Soap & Cleaning materials company now has its defensive shares priced at $184, making for a $23 billion market cap.
Entering 2020, shares traded near $160 each. I see a Zacks Value score of D, a Zacks Growth score of B, and a Zacks Momentum score of D.
Key Global Macro
This week, the world will cross the two million mark in cumulative COVID-19 cases.
Italian Prime Minister Conte guided. Shut-ins might last another month. Spain indicates they might end a tad sooner.
Policymakers would be wise to overshoot time spent in lockdown, rather than undershoot, and risk renewed case acceleration.
The U.S. has suffered the largest number of coronavirus deaths in the world. The country’s toll has climbed to more than 22,000. As many as 2,000 people die every day.
On Monday, India’s CPI should be +5.9% y/y, down from 6.6%.
On Tuesday, the Bank of Indonesia may cut its 7-day repo rate, from 4.5% to 4.25%.
On Wednesday, U.S. retail sales figures for March come out. Consensus has -7.5% m/m. Ex-auto retail sales are at -4.5% m/m.
A March U.S. retail sales decline of -10% can happen. U.S. vehicle sales plummeted -32% m/m in March. Vehicle sales account for 20%. Further, gas prices fell by -8% m/m. Gas stations carry an 8% weight.
The latest U.S. industrial production figures come out. Expect a -4.1% m/m fall.
The Fed’s Beige Book comes out.
The Bank of Canada announces an interest rate decision. The have a policy rate at 0.25% already. No change expected.
On Thursday, China reports Q1 GDP. A wide dispersion of estimates circles a median contraction of -6.0% y/y and -10% q/q seasonally adjusted.
The latest U.S. housing starts come out. Look for 1.3M after 1.6M the prior month.
Peru’s central bank likely eases an additional 50 basis points, from 1.25% to 0.75%.
The U.S. will play the weekly initial jobless claims game again.
On Friday, Eurozone core CPI should be flat at +1.0% y/y.
Conclusion
To wrap this narrative up, let’s consult a trader who made money across the 1920s.
Jesse Livermore is one of the greatest stock market traders of all time. Every self-respecting trader knows his story. He made millions in the market several times. His best-known winning trade was shorting the big market crash in 1929.
Here is his number one quote, and it is apropos to today’s trading environment—
“There is nothing new in Wall Street. There can’t be, because speculation is as old as the hills. Whatever happens in the stock market today has happened before, and will happen again.”
Because the stock market is made up of all of the traders, those are the people that make the stock market. And human nature doesn’t change that much over time.
Of course, there will be different circumstances in today’s market than there were almost a hundred years ago.
But the way people react to changes in the stock market will never change.
“Patterns repeat, because human nature hasn’t changed for thousands of years.”
Finally, this quote also came from him:
“In any sector, trade the leading stock — the one showing the strongest trend.”
Good luck to all.
Stay safe.
Warm Regards, John Blank
Will you retire a millionaire? One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.” Click to get it free >>
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Trading a Record "Cannonball Run" Global Week Ahead
Stock traders enter this Global Week Ahead with the S&P500 at a critical juncture.
That key U.S. large cap stock benchmark bounced to 2800, after gaining back +12.1% last week. This is close to a 50% retracement. The 12-month low is a tad under 2,200. The high is a tad under 3,400.
Added to that, this Global Week Ahead begins Q1 earnings season. Given the vast uncertainty, company conference calls will be especially important.
Noted firms in the Zacks major bank industry kick it off.
Our big bank industry includes JPMorgan (JPM - Free Report) . It reports before the market opens on Tuesday, April 14th. Bank of America (BAC - Free Report) reports on April 15th and so does Citigroup (C - Free Report) .
Big bank shares have bounced back from the March 23rd lows. But their retracement has lagged the broader market.
As a result, while the S&P500 index was down -13.6% YTD through Friday, April 10th, the KBW Bank Index (with 24 names) was down -33.6%.
The price to book ratio on that index? It is below one at 0.86. The P/E ratio? It is 8.0.
At this juncture, any investor should have a list of questions:
Chuck Carnivale of the Dividend Kings, writing in Seeking Alpha, offered a solid answer:
“So, what is an investor to do?
“For me personally, I’m acting like Santa Claus — I’m making my list and checking it twice. My rational mind says that quality is supreme in this environment, and in that same regard cash is king.
“Therefore, I am actively conducting research on the highest quality companies that I can identify and find. Then I am building lists of high-quality stocks that fit various investment objectives.
“For example, I have put together a list of dividend growth stocks as well as a list of pure growth stocks that I believe will not only prevail during this crisis, but perhaps even prosper.”
To gauge that, will the future macro-economic path resemble one of these letters: V, U, L, or W?
Good news first.
Pre-COVID-19 macro reports continued to show strength.
U.S. job openings were near highs. The ratio of unemployed persons per job opening had been 0.8 in Feb. 2020. This ratio wasn’t above 1.0 going back to late 2017.
U.S. consumer inflation data was low on core (+2.1% ex-food and energy) and negative for the headline (+1.5% y/y, with -0.4% showing up for March).
Then, the load of bad news…
Everything else plummeted.
(1) To start, the NY Times wrote that the nation’s epically uncrowded highway system allowed a white 2019 Audi A8 L sedan with extra fuel tanks to depart a NYC garage and arrive in LA less than 27 hours later.
That’s a record — for the sprint known as the “Cannonball Run.”
That car clocked an average of 103 mph. Google Maps says 41 hours is the average.
Traffic levels have dropped more than -90% in some major cities, and at least -50% nearly everywhere.
(2) The number of scheduled flights in the last week of March was almost half that of the same period a year ago, according to OAG, a data consultancy.
In the first week of April, air travel hubs such as the U.K., Hong Kong and Switzerland experienced declines of more than -90% in their flight numbers, OAG said.
Globally, flight numbers are down -70% so far this month, according to the International Air Transport Association.
Some aviation analysts now predict: It could take up to three years for the industry to return to the traffic levels of 2019.
(3) Cruise stocks quite literally sell like they are going out of business. Carnival Corp. (CCL - Free Report) , Royal Caribbean Cruises (RCL - Free Report) and Norwegian Cruise Line Holdings (NCLH - Free Report) are off -76%, -70%, and -78%, respectively, YTD, and trade at 0.3x, 0.7x and 0.4x book value. No cruises until Q4, and then what about sales?
(4) WTI crude oil prices fell on Monday to $23 a barrel, a day after OPEC+ oil producers reached a historic (but voluntary) agreement to cut oil production.
Analysts at Goldman Sachs and elsewhere said the moves were “too little, too late.”
(5) The decline in U.S. rail traffic has been the largest since the Great Recession.
(6) Nearly a third of U.S. apartment renters did not pay rent in April.
(7) U.S. mortgage applications dropped -17.9% from the prior week. They now track the weakest years in recent history.
(8) Michigan consumer sentiment dropped to 71. This was the lowest reading since 2011 and the largest monthly decline in history.
One U.S. specialty retail analyst added: Full closures likely run through the end of May, coinciding with furloughs for all part-time and up to 50% of corporate staff.
Across the board, U.S. restaurant sales should be down -70% in Q2. Maybe -35% in Q3 and -20% in Q4?
(9) Last week, U.S, initial jobless claims hit 6.6 million, down from the prior week’s 6.9 million, but worse than the expected 5.0 million. With the rapid shutdown of so much of the economy the spike in claims is not really a surprise. We simply have no background to evaluate the large numbers, or how long the surge might last.
Most layoffs are described as temporary. Many are covered by increased unemployment insurance under the CARES Act.
(10) Over one-quarter of the U.S. economy has gone idle.
Top Zacks #1 Rank (STRONG BUY) Stocks
The choice for stock pickers looks bifurcated.
Very short term? Play “the cannonball run” regime. That means buy defensive names, and/or steer clear of stocks altogether.
Or bet on a big cyclical recovery – aka the “long-term” -- and strap in tightly.
Next are three examples. These stocks lay out the current landscape well.
Koninklijke Philips N.V (PHG - Free Report) : This is a $42 a share stock with a market cap of $37 billion.
Shares used to price at $48 pre-shutdowns. I see a B for Zacks Value, and A for Zacks Growth, and an A for Zacks momentum.
Zoom Video (ZM - Free Report) : Remote video is the shutdown game. This company is leading the way. It’s a $124 stock currently, with a market cap near $35 billion.
Entering 2020, shares traded near $70 each. I see a Zacks Value score of F, a Zacks Growth score of D, and a Zacks Momentum score of D.
The Clorox Company (CLX - Free Report) : This Soap & Cleaning materials company now has its defensive shares priced at $184, making for a $23 billion market cap.
Entering 2020, shares traded near $160 each. I see a Zacks Value score of D, a Zacks Growth score of B, and a Zacks Momentum score of D.
Key Global Macro
This week, the world will cross the two million mark in cumulative COVID-19 cases.
Italian Prime Minister Conte guided. Shut-ins might last another month. Spain indicates they might end a tad sooner.
Policymakers would be wise to overshoot time spent in lockdown, rather than undershoot, and risk renewed case acceleration.
The U.S. has suffered the largest number of coronavirus deaths in the world. The country’s toll has climbed to more than 22,000. As many as 2,000 people die every day.
On Monday, India’s CPI should be +5.9% y/y, down from 6.6%.
On Tuesday, the Bank of Indonesia may cut its 7-day repo rate, from 4.5% to 4.25%.
On Wednesday, U.S. retail sales figures for March come out. Consensus has -7.5% m/m. Ex-auto retail sales are at -4.5% m/m.
A March U.S. retail sales decline of -10% can happen. U.S. vehicle sales plummeted -32% m/m in March. Vehicle sales account for 20%. Further, gas prices fell by -8% m/m. Gas stations carry an 8% weight.
The latest U.S. industrial production figures come out. Expect a -4.1% m/m fall.
The Fed’s Beige Book comes out.
The Bank of Canada announces an interest rate decision. The have a policy rate at 0.25% already. No change expected.
On Thursday, China reports Q1 GDP. A wide dispersion of estimates circles a median contraction of -6.0% y/y and -10% q/q seasonally adjusted.
The latest U.S. housing starts come out. Look for 1.3M after 1.6M the prior month.
Peru’s central bank likely eases an additional 50 basis points, from 1.25% to 0.75%.
The U.S. will play the weekly initial jobless claims game again.
On Friday, Eurozone core CPI should be flat at +1.0% y/y.
Conclusion
To wrap this narrative up, let’s consult a trader who made money across the 1920s.
Jesse Livermore is one of the greatest stock market traders of all time. Every self-respecting trader knows his story. He made millions in the market several times. His best-known winning trade was shorting the big market crash in 1929.
Here is his number one quote, and it is apropos to today’s trading environment—
“There is nothing new in Wall Street. There can’t be, because speculation is as old as the hills. Whatever happens in the stock market today has happened before, and will happen again.”
Because the stock market is made up of all of the traders, those are the people that make the stock market. And human nature doesn’t change that much over time.
Of course, there will be different circumstances in today’s market than there were almost a hundred years ago.
But the way people react to changes in the stock market will never change.
“Patterns repeat, because human nature hasn’t changed for thousands of years.”
Finally, this quote also came from him:
“In any sector, trade the leading stock — the one showing the strongest trend.”
Good luck to all.
Stay safe.
Warm Regards,
John Blank
Will you retire a millionaire?
One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”
Click to get it free >>