This Evening’s Log Entry

Equities rallied 3.5% against not so rosy internals (ex: spx volume 22% below average, NYSE Up volume only 52% of total). I.e., while, based on price action alone, there remains an appetite for stocks, the internals today suggested that traders weren’t as hungry for them as they were last week.

In the face of some very troubling macro, today’s rally could be explained by what remains of the quarterly rebalancing trade, short covering, and positive news over potential drug therapies now, and vaccine trials coming in the fall. Friday’s news of 3-months worth of tariff relief could’ve been in play as well…

Beyond the potential whys and wherefores of the present as well as future rallies, the facts on the ground are that we are entering what’ll in all likelihood turn out to be a recession that at a minimum rivals 2008’s. The question throughout that traders will be wrestling with will be whether or not a virtually unconstrained amount of government stimulus will buoy markets to the point of averting a third-in-a-row bear market that takes stocks down by ~50%.

While, given the economic reality of what we know today (which could change tomorrow) says that a similar to the last two drawdowns is a distinct possibility, whether we’re talking 35% (the average for a bear market) or 50%, that’s not our focus. Our focus is on trends in data and whether or not they’re conducive to allocating portfolios in a manner that reflects strong bullish conditions.

At this point not even close…

Note: Just as I was cleaning up the above for the blog, SPX futures exploded higher. Newsflash says that China’s manufacturing and service PMIs rebounded all the way back into expansion mode in March. At first blush that’s utterly remarkable, particularly for manufacturing, given that the majority of their export destinations are on economic lock down. 

Now, two things: 

1. They say never trust the official data out of China, this might be why. 

2. It’s my understanding that the PMIs (Purchasing Managers Indexes) are calculated from the previous month — which scores were the worst on record. Meaning that today’s expansion score (above 50) reflected expansion off of the worst month on record, which ain’t sayin much…

I’m thinking we go with #2, since China’s factories are reportedly back up and running. Which means futures traders are totally misinterpreting the message this evening…

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