Market Briefing for Friday, May1

Superb market performance for April, following our down-up turnaround nailed in March, actually yielded the best month in 33 years. Nevertheless, with so many chasing the senior averages, and a very bifurcated market, it's obviously a time for investors to focus on a few sectors that are both safe with growth potential, and speculative plays here and there, while too much hype may be focused on risks and benefits of the national trend to reopening the economy.

That's a huge conundrum, with some contending there's no more than just a couple weeks during which Americans will 'put-up' (as if they're somehow only accommodating the healthcare system, which they are to a degree but to do otherwise, in some cities does put their well-being at risk) to the fairly strong 'social-distancing' mandates, as related to 'stay at home' orders.  

While our view of exhaustion increasingly a risk pressing S&P 3000, there are so many variables, but it's increasingly clear the market certainly isn't, by any measure, as underpriced as it was during the anticipated February and March 'crash', which tanked pretty-much everything, not just those of course primarily-impacted by the pandemic-based liquidity-crunch. So now let's just update a few points, in what again is a market with rising risk:

     (Hint: if the market plunges later in May, MBS might play a role.)

Executive Summary:

• Bifurcated market behavior, with the growth curve of demand not at all the key to this market, as much can't be known until Q3 or so, unless of course we get a sudden breakthrough with a 'strong tea' good drug

• All the arguments about a strong economic 'V-style' recovery are moot, if desirable, should Corona get its own second wind, and rage anew

• That alone could be an excuse for a further commercial property hit

• Apple, (AAPL) which increased it's share buyback program and dividend, now caters more to investors than the product excitement warrants, 'yet'

• By the way it's not 'all about iPhone' (we recently discussed iPhone 12 prospects), as in this case business is perking-up not only in services, but for MacBookPro's and iMacs (given so much work-from home)

• Knowing this is a trend we're anticipating a generational 'bump' more than just higher spec processors, in new computer models this year

• Apple TV (the 4k movies not the device, which should somehow be differentiated in the next rendition) doesn't get much 'buzz', while the upcoming HBO Max from AT&T will likely get much-wider 'screening'

• Better revenues but lower profits characterized Amazon (AMZN), which has a few issues to contend with, aside safe worker warehouse conditions

• A new scandal erupting, as Amazon apparently contracted with one of the blacklisted Chinese vendors for fever-detection equipment, with a backdoor capability (if activated) to transmit facial-recognition data, so of course Amazon may have to change providers

• This conceivably helps American or free-world temperature monitoring systems, which could well benefit any of several companies already in a very good position for enhanced security and monitoring

• Many of these are existing or new LightPath Technology (LPTH) customers, which we have covered fairly thoroughly, since elevating our interest again below $1 a share; now solidly moving over $2 as visibility grows

• LPTH benefited as prior merger debt diminished, various management reorganizations, and a new CEO took-the-helm, all of which happened just before Covid-19

• Of course that coincidentally left LightPath (speculative stock but now with a largely new ownership structure we suspect) in a very good spot to benefit from a seriously-ramped both visible and IR lens demand going forward, and ability to make lenses with US-sourced material

• Factors that were driving this market met some 'sobering resistance' as a couple thing collide: desire to reopen the economy more widely, while Covid-19 has not been contained or truly suppressed in many cities

• The divergence of regional conditions is being recognized by governors generally, but not entirely such as in California where Los Angeles truly is in a tougher spot that much of the rest of the State, yet restrictions at this point were being applied broadly, 'as if' it was the same statewide, until the Governor backed-off making Newport Beach only, closed

• New York / New Jersey is 'better' but it's really just 'less extreme', as a grasp on medical capacity finally has risen to accommodate demand

• Of course much is made of the 'stay-home' orders intended to help the medical establishment establish a level of service they can provide, so we're somewhat there, but shouldn't be confused with curve-flattening, as that is still not very impressively achieved as of yet (in some areas of course it is, but not broadly)

• Finally, Wednesday was a bit too 'euphoric' especially if primarily based on Gilead's Remdesivir; as it seemed Dr. Fauci was 'pressed' into more of an endorsement than he was comfortable with, and we recognize as I have said all along: 'take death off the table' and we'd be good to try to go, but it's an IV drug so like we said, 'it's weak tea not strong tea'

• Therein, despite great desire to go out to eat, get a haircut and so on, I have to say there's some reticence, given we don't 'really' have a very effective drug, which needs to be 'oral' and prescribed on earliest Covid symptoms, not at the point where a patient's hospitalized

• Hence Remdesivir (unless reformulated into an aerosol or pill) really is not 'that' drug, as would be more comforting in these pre-vaccine times

• There are many drugs in various experimentation phases, vaccines as well, with Pfizer's (PFE) candidate initiating testing in Germany next week

• There's a debate about who would or wouldn't get on an airplane later this year, my two cents is 'not now' based on what we know, but if there is a 'very' effective drug later this year, 'perhaps', otherwise waiting for a vaccine before taking too many chances with commercial travel

• Amarin (AMRN) reported this morning, and while all was solid, the CEO leaned heavily on fighting for appeal regarding their innovation with Vascepa

• That's all fine, but if there is no prior settlement with generics, it tends to push this out to a 2021 outcome, though the parties can always just come to an understanding, but the tough tone is why shares sold-off

•  (I'm not saying JT's unjustified, just saying investors weren't thrilled at the same time the 155 million quarterly sales of Vascepa was actually good considering marketing headwinds during a pandemic)

• Aside a few sectors that dominate this market or have potential almost regardless of the senior indexes for the near-term, this market reaches high valuation levels and poises the S&P to contend with the old saw: 'sell in May and go away', which may apply 'somewhat' ahead

• It's sure not a typical year to merely follow 'Farmer's Almanac' style seasonals, so we keep an eye out for correction, probably not much more, providing avoiding a financial crisis, such with MBS or such

• So, further collapse of commercial property and oil sector businesses, risks more than non-performing loans, but presses banks, remember it was and is key to get the economy moving soon, Fed backing sounds amazing to many, but there will be a limit as summer arrives  

It all matters to investors, both with respect to various sectors and what is, to an extent, consider a 'shutdown basket' of stocks that benefit currently, most of which are not taking advantage of others disadvantages (although some retail sites might be doing that), while some make the right products to help everyone cope with this situation (medical and security emphasis).     

The market is expensive for super-caps and barring 'real' new drugs, is vulnerable in May. Watch for commercial-property related woes. The S&P has achieved the high-end of our target-zone, and increasingly is at-risk of retrenching, obviously very sensitive to news either way.