April 21, 2020
The COP’s Did It…
Covid-19, Oil & Profit Taking Take Market Down
Major Indexes Down Most Since Market Bottom
As I have noted, the U.S. stock market confirmed a new uptrend with a follow-through upday April 2. Today was the first day two or more of the three major indexes fell by 3% or more. Blame it on the COP’s: Covid-19, oil and profit taking. While the daily coronavirus stats show slowing new Covid-19 cases, they are still staggering. Confirmed coronavirus cases worldwide topped 2.5 million with nearly 175,000 deaths, according to Worldometer data tracker. Russia, Turkey and the U.K. each saw more than 4,000 cases, while Spain added nearly 4,000. U.S. cases surged by nearly 10,000 to surpass 800,000 with 43,524 deaths.
The super shocker is oil. After yesterday’s historic drop in oil prices, U.S. crude for May delivery, which expires today and had traded at $10.01 a barrel. It had been negative intra-day. That is below zero. That means if you wanted to sell a barrel of oil, you had to pay someone to take it! The more active June-delivery futures fell 43% to settle at $11.57 per barrel. The most overused word heard in the financial realm since this crisis began is appropriate; unprecedented. The crushing crash in oil prices is weighing heavily on investor sentiment. The supply/demand situation hovering over oil underscores the dire economic impact of the coronavirus.
After a ‘V’ shaped pattern formed in the stock market’s chart, profit taking was to be expected. After falling around 35% from its late February high to late March low, the S & P 500 soared over 25% through yesterday. Here’s the chart:
A day after the S&P 500 hit resistance at its 50-day moving average, the index sold off about 3.1%. That is a concern. It indicates that the 50-day line now stands as a key obstacle in the market’s uptrend. Here’s today’s scorecard:
I stated this in the last Market Update April 1, “One of the most alarming traits of the stock market in the first quarter – with respect to the Dow – was the frequency of 1,000 point daily moves.” That has, at least for now, stopped. Volatility has definitely settled down. On another positive note, recent U.S. fiscal and monetary stimulus has helped bridge the financial gap for small businesses and people who are unemployed. This afternoon the Senate voted in favor of another $500 billion for a second round of stimulus money. The House is likely to approve that as well later this week.
Here’s some wisdom (and honesty) from economist, John Kenneth Galbraith…
“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”
Hope this is helpful.
Thank you for your continued trust and confidence. I remain vigilant as I manage and oversee your investment account.
John