Johnson & Johnson Gets Boost After Announcing September Trials Of Vaccine Planned

No one likes a flat beer or soda, but a flat open for the major indices? The way things have gone the last month, most investors would probably take it.

If you’re looking for hints that things might be slowing down a bit from this nearly unprecedented volatility, check out the overnight action in futures. Major indices fell around 2% right at the open Sunday night, but then clawed all the way back to unchanged a couple hours before the opening bell. After that, they actually started turning green, and now it looks like things could be positive in the early going. 

We’ll see where things close, but just being near unchanged is a positive. A few weeks ago, it’s arguable news like Sunday’s announcement from President Trump extending social distancing through April 30 might have weighed on stocks. 

Now, investors might be entering the “acceptance” phase of the crisis. People know this is going to go on a while and accept what doctors say about how things could get a little worse, but they seem to feel reassured by the Fed and Congress taking quick action to give the economy a security blanket.

It’s positive people aren’t clinging to every piece of bad news. Also, investors might be cheering the fact that all levels of government seem to be getting on the same page—which arguably could be key to defeating this. It was hard for investors to hear different messaging from different authorities about time framing.

News that Johnson & Johnson JNJ plans to start human testing of a coronavirus vaccine by September also appeared to inject some early optimism. Shares of JNJ jumped 4% in pre-market trading.

Another hint that maybe we’re starting to leave some of the unprecedented volatility behind is the last 10 days of S&P 500 Index (SPX) performance. It fell more than 3% last Friday after a three-day rally. However, it hasn’t fallen more than 4% in a session in over a week, and it’s now been two weeks since that epic March 16 plunge of more than 12%, the worst day since 1987. The SPX has risen five of the last 10 sessions.

Caution Flags Still Waving

That’s not to say more sharp losses or even a test of recent lows can’t happen. Many analysts say it’s possible. So is more volatility, as the Cboe Volatility Index (VIX) doesn’t show signs of any retreat. Also, there’s some definite buying going on with interest rate products. The 10-year Treasury yield is down below 0.7%, so that bears watching. 

For now, though, investors probably welcome any sign of the stairs getting less steep both going up and down. As we’ve said, it would be good to see the major indices find trading ranges so the market starts to act more like it typically does, with clear support and resistance. It’s hard to say if we’re there yet or what it would take to get there, but last night’s action was fairly positive on that front.

The other interesting thing this morning is crude, which fell as low as $19.92 a barrel overnight. There isn’t demand at the moment, let’s be honest. Airlines are flying limited schedules, people aren’t commuting, and schools are closed. The demand part of the oil equation is way, way down on the scale.

Can Market Stay Resilient in Face of March Data?

Whatever happens with the virus, it’s almost certainly too late to save the data from last month. It might be interesting to see how the market reacts, especially after it basically discounted last Thursday’s historically bad initial claims number, which came in at 3.28 million.

Data points are backward looking and stocks tend to look forward, but it might be hard for investors to look past what are probably going to be some very unpleasant statistics in coming weeks.

The monthly payrolls report this coming Friday looms large after February’s report showed 273,000 jobs created. A number like that is probably going to be hard to envision for a long time moving forward as the economy takes a trip to the proverbial woodshed. Last week’s initial unemployment claims were potentially just the start.

Analysts expect job losses of 150,000 last month, according to Briefing.com. That will likely end a long streak of positive jobs growth. 

This week also brings consumer confidence data and the ISM manufacturing index, which was a little soft even late last year long before anyone had heard of the virus.

The other number likely to be on peoples’ minds this week is the virus caseload. Most Americans have been “sheltering in place” for nearly two weeks now. No one knows when the curve might start to flatten, so to speak. 

Friday Skid Came Back to Haunt Again

The Friday feature included another disappointing finish, kind of like a lot of Fridays lately. It was especially frustrating to see so much late selling after major indices gained ground an hour before the close. Still, it wasn’t too surprising when you consider how nervous many people felt about going long into the weekend.

Last week as a whole, though, could have been a lot worse. While the SPX couldn’t hold psychological support at 2550, it still ended 16.5% above Monday’s three-year low. Not a completely happy ending, when you get right down to it, but not something that would necessarily frighten the kids too much.

It’s a relief to see Congress pass and the president sign stimulus legislation last week. They basically threw everything at this crisis, and acted with historic speed. The question is how long it will help. A month from now, will Congress need to do more? We’ll have to wait and see, and hope things get better.

Remember the Human Aspect

Behind the raw numbers, let’s not forget, there’s some real human suffering. Especially for service workers who typically don’t make a lot to begin with and who can’t do their jobs when restaurants, bars, and even airports are closed or nearly empty. 

Some airlines carried less than 25% of their normal passenger load last week, so think about what that means to the people you buy coffee from at the airport and the ones who serve more coffee on your flight. This has been devastating for many low earners, and that’s likely to start showing up in the leisure and hospitality segment of the payrolls report, especially.

All this makes it harder to say we’ll see a quick “v-shaped” recovery in the stock market or the economy once this ends, according to some analysts. For example, even when people are allowed to go back to work, how many will feel comfortable getting on a crowded commuter train where someone’s coughing? Consumer sentiment hit the skids in March, according to the University of Michigan. The headline number of 89.1 was down from 101 in February, the fourth-largest one-month decline in the last 50 years.

CHART OF THE DAY: CAN WE INVERT THIS? The one-month chart above shows the Russell 2000 Index (RUT—candlestick) of small-caps trailing both the Dow Jones Transportation Average ($DJT—purple line) and the S&P 500 Index (SPX—blue line). In a better world, the RUT and the $DJT would be catching up to and surpassing the performance of the SPX, because both are often seen as barometers for domestic economic activity. Let’s check back in a week or two and see if there’s any progress. Data Sources: FTSE RUT, S&P Dow Jones Indices. Image source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Just in Case: One thing most investors probably don’t miss lately is sharp losses triggering circuit breakers that halt trading. This happens when the SPX falls 7% in a session, as we saw several times earlier this month. While stocks regained a little footing the last few days, volatility remains historically high, so don’t let this rally get you thinking that circuit breakers can’t get triggered in the future. In this unprecedented crisis, it’s certainly possible. 

If you’re there the next time circuit breakers kick in, remember it’s likely a sign that market volatility has increased and you might see bigger—and perhaps faster—moves in the market. To combat this, you may want to place smaller orders to account for these sorts of movements. It’s also particularly important for investors to have a very clear view of the time frames for their investments—whether those time frames are measured in days, weeks, months, or years. There’s not much anyone can do until trading resumes, so consider using the circuit breaker as an opportunity to assess your portfolio and think about your long-term strategy. Hopefully this won’t be something anyone has to deal with soon, but as the old motto goes, “Be prepared.”

Unicorn Sighting: Remember last year’s “unicorns”—those exciting young upstarts that went public with lots of vigor? Well, they’ve been navigating this crisis like everyone else, some with more luck than others. So far, unicorns that serve peoples’ “stay-at-home” needs have fared better. For instance, Chewy Inc. CHWY, which delivers pet food and supplies, is up nearly 13% since Jan. 1. Peloton Interactive, Inc. PTON, the home exercise equipment maker that made a splash with its TV ads last year, is down slightly since 2020 began, but doing better than the broader market. The plus-side also includes Slack Technologies, Inc. WORK and Zoom Video Communications, INc. ZM—beneficiaries of the migration of schools and offices to our homes. On the other hand, unicorns dedicated to getting people around, like Lyft, Inc. LYFT and Uber Technologies, Inc. UBER, both got driven down hard. With almost everyone staying home, the likelihood of any near-term initial public offerings (IPOs) from private companies that provide living and workspace like Airbnb and WeWork seems to have faded. 

Meanwhile, last year’s darling of unicorn darlings, Beyond Meat, Inc. BYND, has crumbled 14% this year. It does remain well above its IPO price of $46, however, at around $65 on Friday. That’s down from the peak of nearly $240 last July. Here’s a company with a product that people and restaurants flocked to in normal times. Now, however, plant-based meats seem like a low priority for restaurants just struggling to stay open. Especially at this point when one famed Chicago steakhouse is offering carry-out prime New York Strip steaks for $30 each. Fire up the backyard grill! 

Barometer Check: Since we’re talking about some of the smaller stocks, how about a look at the Russell 2000 Index (RUT)? It’s down 32% year-to-date, which easily trails the SPX (down 21%) and might reflect peoples’ ideas that smaller companies—which typically have more exposure to the domestic economy than their bigger brothers in the SPX—might be more vulnerable to the virus impact here at home. On the other hand, regional banks, which form an oversized portion of the RUT, showed a little life last week thanks in part to some help from the financial stimulus. Seasoned traders will probably tell you that small-caps often can be good barometers for the domestic economy, so any hints that the RUT is starting to turn things around are potentially positive for more than just small-caps. Consider keeping an eye on it to see if it can start catching up with the SPX. The good thing is that as of Friday, the RUT was up 17% from its mid-March low, a little better than the 16.5% increase the SPX logged from its low point.