D&D Note (4.14.2020) ~ Market Getting Ahead of Itself? ~
Today we saw stocks like Amazon (AMZN) hit all time highs and the major Indexes essentially pricing in “all clear.” Has the market gotten ahead of itself? Many market makers are certainly beginning to think we’ve gone too far too fast. An interesting comment made today by an investor was the market is trading on emotions right now and just like people rushed emotionally to buy toilet paper now people are emotionally rushing to buy stocks.
DOW up 2.40%
S&P 500 up 3.06% (2846.06)
NASDAQ up 3.95%
The 2800 level (for a nice round number) is a key technical level. Today we finally blew through that resistance level. Going forward can we maintain above 2800? Jury is still out.
We certainly could see rolling sector corrections due to earnings that allows the overall market to stay flat too elevated. For example today the banks sold off due to earnings, but the Mega Cap tech stocks and the FANG stocks rallied hard, with the NYSE FANG index up over 5%.
Oil falls 7.41% to 20.75 a barrel.
VIX fell over 8% to 37.86.
Tesla gets a Credit Suise upgrade to “neutral” with price target of $580 (which is still well below where it is currently trading of over $700).
Netflix gets price target boost by Bank of America to $460.
Roku has its price target cut be Needham to $150.
New Jersey reports a record amount of deaths due to Covid-19.
Italy reports its fewest new Coronavirus cases in a month.
Harvard researchers suggest some amount of social distancing might be needed through 2022 due to the virus.
There is a conundrum as many stocks that are rallying are because of the Pandemic. Which means once the Pandemic is over there will be multiple contraction. So while the market is pricing in “all clear” its also rallying on the back of the current lockdowns.
The IMF has forecasted a 3% global contraction which is much worse than the 2008-2009 financial crisis. The IMF economist Gita Gopinath today did express concern that their base case could get worse if Emerging Markets see more pain from the virus.
Dr. Fauci today told the AP that the United States is “not there yet” in having the elements put in place (like testing) to reopen the economy. When asked about a possible May 1st reopening he replied that is “a bit over optimistic.”
Again, the conundrum. The leading health expert in the US today says we are not ready to reopen the economy and the IMF forecasts a worse global recession than the financial crisis. Yet the Market rallies like we are ready to reopen the economy and that everything is back to normal.
Too far too fast? Time will tell.
~ Dave James / Principal Trader and Market Strategist