Evening Note

In this morning’s note I suggested that the momentum from yesterday’s late-day rally was looking to push into today’s session, and that today’s session would likely see better breadth — vs yesterday’s rally that turned out to be quite narrow/uninspiring.

Well, to my surprise, not much. I.e., while the major averages rallied across the board, the internals painted anything but a bullish picture.

Here’s today’s snapshot:   Click to enlarge…

Once again, overall volume (10% below average) disappointed on a decent up-day. Drilling down: Consumer discretionary saw impressive volume (16% above average), however the company that accounted for more of it than any other happened to be Norwegian Cruise Lines, with huge 347% above average volume, but with a share price that plunged a whopping 22%: That’s anything but the bullish action we’re looking for. That said, the discretionary sector overall did finish in the green, but it was down a ways on the leader board, with a 0.35% gain. As for the sectors with the lowest volume, tech and staples were a tie, both 22% below average.

Like yesterday, falling shares saw more volume than rising shares on the NYSE (bearish). Although, unlike yesterday, the S&P 500 did sport more stocks rising vs falling 330 to 174. The Nasdaq did as well, but it was close; 1,359 to 1,269. In terms of 52-week highs and lows, both the S&P and the Nasdaq had members experiencing both, with more ups than downs in that category. As for stocks trading above the all-technically-important 200-day moving average, 24% and 26% respectively is far from anything to write home about. Now, despite the negative bent of my summary, today’s action was a wee bit healthier than yesterday’s.

Bottom line: Among other things, the internals will need to improve markedly before we can characterize the latest as anything but your classic bear market rally. But I’m certainly open to the idea…

We’re well into Q1 earnings reporting season, and of course the dynamics shifted markedly when the economy virtually stopped in March. Nevertheless, earnings and revenue growth are always things worth tracking. Per the below, the quarter wasn’t pretty, with 7 of the 12 major sectors seeing marked hits to revenue. Of the 5 that experienced revenue growth, 3 happen to be our top 3 sector weightings; consumer staples, healthcare and utilities. Consumer discretionary and communication services were both able to manufacture growth in earnings, however neither was able to grow its revenue in the quarter: The top line is harder to mess with than are earnings:

Click to enlarge…

A lot of data were released today, and, frankly, none of it good. The most watched/respected being the ISM Non-Manufacturing (i.e., services) Survey. The headline 41.8 reading is historically-low, however, it’s better than the forecast 38. Under the surface, however, the survey was even more troubling than the headline number: Business activity scored 26, new orders fell to 32.9, and employment came in at a remarkably low 30. For context, 50 is the dividing line between expansion and recession, and the last go-round (2008 recession), the three bottomed at 34.4, 35.4 and 31.8 respectively.

Forgive me folks, I know my messaging  of late has been anything but inspiring. The good news is that economies and markets are cyclical (despite the best efforts of the Fed, at least historically-speaking) and we will indeed cycle our way through this recession. 

Although it’s likely to take awhile…

Have a nice evening, 


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