Tuesday Market Briefing 06-09 — Turbulence

Caution, wake turbulence…

That’s what I heard from the control tower as I turned final for landing. A jet had just touched down before me and his powerful engines would likely make my approach a bit bumpy.

That’s kind of what we’re seeing in the market this morning as stocks are set to open lower. The market’s rally has had all the strength of a jet engine. But as we get close to all-time highs on the major indexes, investors are taking a pause to see where things stand.

That shift in sentiment can cause some fluctuations both higher and lower. So now that the market has largely recovered from the coronavirus crisis, expect some “wake turbulence” as investors figure out how they want to maneuver.

Dow June Futures: Down 272 (1.03%)
S&P June Futures: Down 30.00 (0.93%)
Nasdaq June Futures: Down 21 (0.20%)

Markets are giving up some of the recent gains this morning, but still in an overall healthy place.

A pullback in oil appears to be the biggest drag on stocks, with Exxon Mobile leading Dow stocks lower. One day’s decline won’t change our overall approach to the market, but we’ll continue to watch this action closely now that stocks have largely recovered from the coronavirus hit.

Gold June Futures: Up 18.00 (1.06%)
Silver June Futures: Down 0.04 (0.22%)

Gold is continuing to rebound from last week’s selloff.

The Fed begins its periodic meeting today and will issue its statement on interest rates and monetary policy tomorrow at 2:00. These meetings can help to influence the value of the U.S. dollar and by extension the price of gold and silver.

Given the amount of stimulus that has been pumped into the economy, and the prospect for recovery, I’m expecting inflation fears to start to surface, helping to drive gold to new highs.

10-Year Yield: 0.817%  
2-Year Yield: 0.212%

After breaking down last week, bond prices have consolidated below the recent range. This range was in place for most of April and May. So the breakdown was a significant occurrence.

I expect this breakdown to gain momentum, probably following the Fed’s statement tomorrow. If the Fed focuses on economic strength, we could see a sharp move lower in bonds (and an increase in yields).

Breaking Morning News

Despite the coronavirus crisis, demonstrations and riots, and a renewed trade spat with China, stocks have continued higher. The Nasdaq — known for its more aggressive-growth tech stocks — just hit a new record high. As more people work from home and live with social distancing, tech is becoming a more important part of our lives and our stock market.

Yesterday, the National Bureau of Economic Research made it official… The U.S. technically entered a recession in February. This marks the end of what has been more than a decade-long expansion in our economy. Now, we can start thinking about how long this recession will last and how the post-coronavirus recovery will progress.

The New York Fed issued a report yesterday showing consumers are relatively optimistic about earnings opportunities. This is a very helpful sign given the fact that our economy is roughly 70% driven by consumer spending. As stores and restaurants open back up, and people have more freedom to escape lockdown, we should see spending increase helping to drive recovery.

Chart of the Day

As lockdown restrictions ease, consumers are getting out and shopping!

The yellow line represents Morgan Stanley’s retail sales tracker. This measure is showing stronger spending than the government “adjusted” number that leaves out some important categories.

Quote of the Day

I’d say that my investment philosophy is that I don’t take a lot of risk. I look for opportunities with tremendously skewed reward-risk opportunities. ~Paul Tudor Jones

Final Thoughts

It’s natural for the market to take something of a breather after the strong gains we’ve recently experienced. Traders will take some profits off the table and investors will reassess the situation.

We’ll continue to look for those “skewed reward-risk opportunities” and manage our risk through the process.

Talk to you tomorrow!

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Zach Scheidt