March 17, 2020
Making a decision to re-enter risk markets based on sentiment indicators alone requires a leap of faith. Technical reversals also require a leap of faith and generally require two sessions to confirm…we’re not there yet but today’s close could be a set-up. And the S&P 500 is unlikely to sustain a significant reversal until there’s an improvement somewhere in the physical world. Ultimately, equities are looking for declining US case counts and we’re definitely not there yet. But with sentiment and positioning (lowest equity to fixed income position gap since 2011) currently at bearish extremes, less-obvious developments can lead to significant rallies. Keep an eye on: 1) any sign of improving conditions/ case counts/mortality rates in Seattle, NYC and Italy; 2) treatment headlines with anti-viral drugs (GILD’s Remdesivir and REGN’s Kevzara for example) will likely have trial results coming in the next few weeks and China is expected to publish Remdesivir results at the end of April; 3) Section 13(3) of the Fed charter allows for a partnership with the Treasury to provide lending support to a Corporate America…today’s commercial paper facility is significant; 4) US Fiscal stimulus with negotiations taking place for a third piece of legislation; 5) Airline/cruise relief would improve debt markets and could narrow credit spreads; 6) Lagarde’s comment after last week’s ECB meeting when she said ‘we’re not here to close spreads’ led to wider spreads in Europe and the US. The ECB and Lagarde have corrected that statement but more would help; 7) Saudi/Russia crude price war…no sign of either side backing down yet, but…and; 8) US retail store closures extend to at least March 27 so investors will be watching very closely to see if locations reopen on March 28.