I use multiple sources to summarize my write ups. If there are any glaring errors blame Bloomberg or CNBC.
04/18 – The Fed is beginning to dial back quantitative easing (QE) as stability slowly begins to return to the market. The Fed stepped up QE in March announcing they would be purchasing 500 billion in government bonds, and 200 billion in mortgage bonds to help restore the markets, and “prevent severe disruptions” to the economy. Then on March 23rd in an unprecedented move, the Fed announced it would conduct unlimited QE and take all measures necessary to support the economy and its markets. After about a month of aggressive intervention, QE will be reduced from 30 billion to 15 billion for the week of 04/20 – 04/24. At its peak, the Fed was spending 75 billion a day in asset purchases from March 19th – April 1st. Despite fears of inflation, for now the US inflation rate remains under its target of 2%.
**Update** Next week 04/27-05/01 QE will be cut back to 10Billion per day
04/18 – China reported a contraction of 6.8% in their economy since the beginning of the year. This is the first reported retraction in China’s economy since they started keeping record in 1992. China had the most strict lockdown out of all countries who implemented such measures, and have so far avoided having to pump massive stimulus into their economy compared to other countries. So far Europe has rolled out a stimulus program worth 591 Billion USD, Japan has approved a stimulus worth 990 Billion USD, and the US has the largest stimulus package so far valued at 2.3 trillion. Despite a quick reopening and efforts to revamp their economy, many citizens are still remaining cautious and foot traffic to retailers have not returned back to normal. Global demand for Chinese exports have also dropped sharply, adding an extra layer of pain since China’s economy is heavily dependent on exports. Pressure is now mounting for the Chinese government to aid its citizens and small businesses since wage cuts, lower production, and reduced hours are still in effect despite all their lockdown restrictions being lifted.
**UPDATE*\* 23% of the SBA loans went to California, New York, and Texas receiving a total of 81billion in loans. Retail, food and accomodation accounted for less than 9% of the approved loans despite being the industries hit hardest by the Corona virus. Construction firms received 13% of all loans,.
04/19 – Despite the recent rally in the market, not all stocks are recovering at the same rate and the economy seems to be moving in the opposite direction. While the S&P 500 gained 3% for the week, Small cap stocks in the Russell 2000 actually dropped 1.4%. A closer look shows that small cap stocks have dropped an average of 35% more, compared to the top gainers in the S&P 500.
In the month of March the US ISM PMI number declined from 51.10 to 49.10, while the manufacturing PMI dropped from 50.70 to 48.50 which is the lowest reported level since 2009. A PMI less than 50 is an indicator of a contracting economy. Despite the 2019 market rally, US PMI numbers have been in decline since 2018. The US was not the only economy to report a declining PMI for the month of March, Europe also reported a drop in their manufacturing PMI from 49.2 to 44.5.
04/20 – For the first time in recorded history, the price of oil contracts (for the month of May) turned negative and ended the futures trading session at -$36.73 per barrel. Despite cuts by OPEC and other countries, due to the continued lockdown of the global economy oil supply still far outpaces demand. It is estimated that currently for the month of April there is a demand loss of 29 million barrels per day. The Saudis are considering cutting their output ahead of the scheduled cut in May due to the falling price in Oil. It was decided that both Russia and Saudia Arabia would make an oil production cut of 9.7 million barrels per day starting in May. Commodity traders believe that today’s crash was largely in part due to retail investors looking to off load contracts to buyers who would actually receive the oil as is required by the contract. The sudden selling frenzy was met with little to no actual buyers for the contracts. It is important to note that the price of oil is not negative overall, futures contracts for the month of June are currently at $22.60 per barrel.
04/21 – On a day that I can only refer to as super Tuesday the markets may have actually started pricing in the possibility of an actual fucking recession. Obviously shook by oils futures contracts for the month of May turning negative the session before, the S&P closed down greater than 3%, Dow closed down about 2.6% while the Nasdaq posted the biggest lost of nearly 3.5%. FAANG stocks which had a massive run up during the April rally sold off particularly hard. $NFLX rallied after hours along with $SNAP due to stronger than expected earnings, while the ride sharing service $LYFT joined their counterpart $UBER in withdrawing guidance for the year of 2020.
May contracts for Oil rebounded from its negative price Monday, and ended in positive territory while June contracts ended the session down 65% dropping from $22 to $6 per barrel. Meanwhile, the largest Oil ETF $USO holds about 30% of Junes contracts, and suffered accordingly closing down 25% @ $2.81 at the end of Tuesday’s session. There is fear that due to $USO owning the highest majority of June contracts, if the June contracts go negative $USO would end up owing money and be forced into a closure.
After the trading day the Senate voted to approve an additional aid package worth approximately 500 Billion. The bill has bipartisan support and is expected to pass the house as early as Thursday. It will add 310B to the SBA for additional small business loans, 50B for emergency disaster loans, 75B will go to hospitals, 25B to expand Covid 19 testing. Trump tweeted that after this bill was signed they will begin working on another aid bill to be released next month specifically targeted to the states who are suffering from lost revenue.
Also, sales of “previously owned homes” which accounts for a majority of the American housing market, dropped by 8.5% in March which was a larger decline than expected.
04/22 – On a day that I can only refer to as “I’m an idiot wednesday” Markets rebounded and recession is cancelled
04/23 – Jobless claims were reported at 4.43 million on Thursday bringing the 5 week total to 26.5 million which is a decrease from the previous weeks. Most states saw a decline in initial claims compared to previous weeks, and decreases in layoffs as well. US manufacturing PMI fell from 48.50 to 36.9.
Gilead $GILD sold off this week after a trial in China was halted for their drug Remdesivir, due to low enrolment, in addition to there being no difference in the mortality rate for the patients on Remdesivir & the control group. $GILD replied that the drug is most effective when administered early and not enough people were enrolled in the trial for accurate results. Stocks quickly sold off of their highs after the announcement, at the time of this writing $GILD is down 5.72%.
In positive news Oil is rebounding for the 2nd day in a row with June contracts trading at $16.89 after dropping as low as $9.46 on Monday
04/23 – While we wait for the house to approve an additional $500 billion dollar in aid, it is reported that 30% of Americans who lost their jobs due to Covid 19, have not been approved for unemployment benefits. Due to either processing delays, rejection, or confusion about whether they’re still on their jobs payroll. The PPP (payroll protection program) is designed to loan money to non-essential businesses in order to allow them to keep their employees on the payroll while remaining shut down during the quarantine. There is concern though, that larger businesses have been taking advantage of this loan money despite not being classified as a small business, and also having available liquidity to pay their employees. It is reported that so far publicly traded companies have been given 500B in aid, and concern that banks have overlooked smaller applications and processed larger loan requests to collect more in processing fees. The US issued guidelines for accepting the next round of loans to prevent abuse from companies taking loans without needing to. So Far Shake Shack (10M), Harvard (8.6M), and Ruth Chris(20M) said they will return their multi-million dollar loans they received from the SBA. The government released a statement urging publicly traded companies to return the SBA within weeks to avoid being evaluated whether or not it was appropriate or not for them to accept capital.
**Update** – The additional aid was passed in the house of representatives on Thursday evening by a vote of 388-5, and was signed by President Trump on Friday. The markets didn’t seem to have any significant reaction to the bill at the time of its signing.
04/24 – Despite intervention from the feds and aid for businesses the list of companies facing bankruptcies are mounting. So far AMC, Neiman Marcus, 24 Hour Fitness, Pier 1, JC Pennies, and Pier 1 are among the list of businesses who are said to be considering filing for bankruptcy or have already started. The retail department stores are said to be getting hit harder than others due to high cost of rent, and lagging sells due to online shopping. The longer the lock down orders stay in effect the more likely it is some of the giant retailers will not be able to recover. $SHOP & $AMZN hit all time highs as many investors believe that online shopping will continue to get stronger even after quarantine measures are lifted due to a large influx of new online shoppers.
Protests to reopen the economy broke out across 10 states this week, as people grow tired of the lockdown orders and forced closure of the economy. Although some but not all states are starting to ease restrictions on local economies allowing small businesses to reopen while keeping social distancing in place. There is talk about allowing restaurants to reopen but at half capacity. This added to concerns that social distancing in place even after lockdown orders are lifted, may harm businesses and reduce their flow of customers.
After a mostly flat morning with all the indexes alternating between positive and negative territory, with about an hour and half left in the trading sessions, the S&P DOW & NASDAQ rallied to end the day all greater than 1%.