Market Briefing For May 12

  Executive Summary:

• S&P continues fluctuating in the targeted zone shy of 3000
• A number of technicians now see this S&P trading range, and argue about extent of downside risk, rather than upside potential
• The market is extended, but risk depends on treatment progress fighting Covid-19, as it's going to be harder to surge without that
• There are speculative drug plays, but just that, perhaps use options 'if' one plays in that realm at all, and not those that already spiked
• Oil might stabilize more 'if' demand globally picks-up, as citizens everywhere avoid mass transit (and revert to private cars if able)
• New York City has a serious challenge as it relies on mass transit, so does London, and private vehicles are not going to be their solution
• Most cities in Europe and major ones in China and Japan do as well
• hence the best approach is clean (UV-C) and accurately try to monitor (IR) passengers, which requires moving to 'large-scale' scanning
• Geopolitical tensions persist, and risk increasing with China
• Some reopening arguments are flawed, and overseas experiences already forewarn of what can  happen
• Herd-immunity is not valid factor the way it's being done here so far, but that can change over time
• The 'nearly-closed' White House can become a bigger issue of course and especially if they temporarily evacuate it for 'sanitizing' as would happen in any facility like that.. with central air-conditioning by the way
• The message of reopening is tainted by precisely the spread in this presumed 'controlled' environment; we wish everyone fast recovery if they test positive (so far the most prominent 4 are negative, aside the doctors the 4th of course is Vice President Pence)

 National Reopening - agitation has taken many forms, with more doubt than confidence seeming to characterize both sides, of what's become a debate. The prospect of whether consumers will gravitate toward returning to their so-called 'normal' shopping and dining patterns is eclipsed as well, given the question of businesses covering costs at reduced occupancy, or similar capacities, much less contemplate profit-margins over next year.  

During this 'transition', which is tricky given that the United States, largely, hasn't 'flattened-the-curve' to the degree most Asian countries have by now (and that matters). Even where the 'curves' flattened (China until recently, where we forewarned that two cities had again been locked-down as now is being heard widely; one of which is very near North Korea incidentally).. even where they flattened it, a second wave fear can be as simple as one new case throwing a lot of carefully-planned reopening longevity into question.    

Here in the U.S. this is not about us being 'coddled' and accustomed to the faster medical responses to anything that troubles us, although certainly it's different than the 1950's, where challenges were just a part of daily life and we went on about it, with some awareness, but not social paranoia (from measles , to chicken pox, to polio, all were out there but we generally kept on going, while waiting for solutions or treatments).  

So are we spoiled now? I say not exactly, because science and the human species 'should' advance during these decades, and this is an extremely virulent virus. That's why it's not entirely unreasonable to see scrambles to address it, or expecting a Covid-19 vaccine on a fast-track versus these 40 years in which we still don't have an HIV vaccine. (Perhaps because there are so many effective drugs that turned it from acute to chronic, there's not the pressure to eliminate it via vaccine; but note President Trump made an elimination of HIV/AIDS a key objective, which few seem to point out as of course he deserves credit for that, but they weren't thinking about China's virus then..)  

I believe we can move forward rapidly, and already have (fairly confident a few, not one, vaccines will be revealed to be worth pursuing with weeks, so 'if the stock market does shakeout it won't do the Bears bidding too deeply in such a scenario, and part of why I'm not heavily on that bandwagon.)  

Of course that's assuming DNA Sequencing and novel AI-based studies (and new never-before designs of vaccines) have advanced significantly over these years, and yes, we should a successful vaccine. Also a concern has been elevated by weekend articles in the Washington Post and the NY Times about side effects, traumatic damage to the human body beyond the known target of the lungs. All that is compounded by mutations of Covid-19 but from what I've read, mutations do 'not' mean differing strains.  

Meaning to us all: a vaccine shown to be protective, has better prospects of universally covering all mutations of Covid-19 (mutated samples share some physical properties commonly seen in lab studies). So I suggest that while there is justifiable anxiety about getting through this and how long it's going to take; there should be less of the 'social psychosis' that fuels most of the projections for economic dislocations to be more horrendous years in the future.  

While markets should retrace somewhat soon; there is quite a reasonable way in which the corrections can be 'contained', and that relates to a smart and progressive reopening as only some are engaged-in. For instance, just look at China or even the UK this morning, traffic increasing dramatic. Is it everyone going back to work or shop? Not exactly. It's everyone who can drive rather than take mass transit. And that by the way brings-up another issue: whether Central London (limited access) or New York City, it's hard to substitute individual driving (or even Ubers) for mass-transit.  

A lot of New Yorkers don't even drive (which I only grasped when doing TV in New York for a few years, I kept a car there as the studios were in NJ and I had to deal with that roundtrip daily). And the idea of disengaging from city living is not entirely inviting. But for the moment, urban sprawl requiring at least a majority to be dependent on private cars, is part of what minimizes viral spread in some regions, where we normally bemoan traffic hassles.     

 In-sum: we do have concern about a second wave this year, as already tends to be the threat where aggressive moves are taken to contain outbreaks in countries like South Korea, Japan and China itself. They are doing so in a very firm way that Americans would find intrusive on privacy, but that may be one area in which there will be no choice but to comply with regulations 'if' an effective and enduring control of Covid-19 is to be achieved. And that of course determines whether optimistic economic prospects are excessive.

Furthermore, the sudden trend 'against' mass-transit is fueling oil demand, at least to some extent. Ultimately that supports our suspicion that despite this month being difficult, oil prices likely saw the panic capitulation as we suspected last month, and as we reopen that should provide a 'floor' to oil. The industry however, needs WTI steadily about 30, eventually.

So yes partial revivals are important in this rolling somewhat disorganized process (welcome to Federalism utilized when a national approach was at the start essentially imposed, and can be, so that's a bit of an excuse for a lack of somewhat better-coordinated leadership). 

But most key remains of course the pursuit of 'taking death off the table' as a prospect for any significant portion of society, especially with all the talk of devastating or lingering physical issues in 'various' age or demographic groups, even after the 'think' they've recovered from the acute stage.  

Perception matters to markets too. The specter of the White House under siege by Covid-19, and having difficulty getting a handle on it, is just part of the disparities between the message being conveyed to encourage people while the Administration personalities were overly cavalier and for quite the long time ignoring their own guidelines (what's good for the gander should be good for the geese, not just the accompanying flock).  

So the recovery is choppy as people remain jittery. And the treatment that instills confidence, especially amidst the prospect of bankruptcies, liquidity and solvency issues, remains illusive, but like the 3-drug treatment shown to be helpful (existing off-the-shelf treatments combined) is encouraging as we await more info about that.  

Daily action - hovers in the 'range' outlined as you know. I suspect Tuesday will see a bit of an effort to retreat to start out with, unless there's some favorable overnight news, but again they'll turn the S&P back up into mid-session.