Market Briefing For Thursday, June 25

Social experiments - are fraught with peril if 'presumptions' fail to unfold. That's been known from the start with regard to this Summer, as I observed: if we didn't get effective treatments (at least one) for COVID-19 within 2-3 months of the low in March, as COVID-19 ravages certain areas (like New York / New Jersey) in the early 'daze', we'd have new problems. Now we do, elsewhere, as dramatic case levels nearly overwhelm Houston. For those who think it's some sort of 'debate', like Constitutional Rights versus an invisible virus that doesn't affect too many, or politicians deride, just ask 'any' ER Doctor and ask their opinion about that.

The market knows this, and despite it being 'un-American' to deal with, it's what we must do, and do well, so we can proceed to thrive anew. My one take-away thought for those who disdain masks (me too as it affects breathing at times due most likely to carbon-dioxide when exhaling during exercise), face shields as an alternative. For now, the technical market conditions can allow stability as S&P tries to hold a high-level support, although absent a miracle, over time, moving to 2700-2800 would seem to be a minimal expectation, although re-balancing in a week could be associated with some transitions as well (more later).  

Executive summary:

• The S&P 'index' catching-down with what the overall market internally has been doing for 3 weeks (correcting), has everyone's attention, but may well surprise with an early washout low, though lower in the morning is likely.

• Caution will have to be exercised because of numerous variables we've outlined, while shorting this market is playing with fire, especially when (not if) there's a headline about a 'believed effective' therapeutic.

• Decline in Oil (demand concern) and Banks (stress test concern and more due to extended recovery outlooks) raises non-performing loans fears anew.

• Skyrocketing 'COVID-19 case counts' are partially offset by better knowledge of handling the virus, and lower mortality rates overall, but particularly in younger patients, while long-term side-effect issues remain.

• Shame on authorities for not advocating face-coverings since February, as it is 'standard established procedure' in much of the world, any face covering would be better than none (hence why I showed how to cut a 'bra' in-half as a mask, or use a thong, months ago). 

• Everyone having mouth/nose covered in public spaces to reduce COVID-19 spread isn't about the inhalation, but 'respect', to reduce transmission from asymptomatic positive folks who can pass virus via talking/laughing/singing/coughing/sneezing, and it also reminds you not to touch your face (since of course most transmission is from touching something then your face).

• The politicization of wearing masks (and COVID-19 denying) is totally off-the-wall as even some governors (who permitted excess) recognize, and by the way it has been political in many places, and was in 1919 too, when citizens tired of the fight, and refused to comply with guidelines, back then many died.

For sure the current 'Sunbelt' coronavirus resurgence has lower mortality (part is due to better familiarity with treatments, and the other is lower average age thus a healthier target-group to start with), but still is frustrating to officials. Only a few have gone-off the deep-end by engaging in a denial of reality, which won't work.

I understand the desire to feel a 'sense of control' (talked about that last night), a perception that the doctor, the hospital, the governor or mayor, or even a Federal official, somehow is taking moves that actually support better 'public health'. It's important that personal humility prevail, which we've seen as several governors that were too cavalier about opening-up their economies, are biting the bullet so to speak, and not really re-closing (although Apple did that today in a few stores in Houston for example), but mandating face-masks and common sense for any public place.  

People's response to social distancing and allied measures like facial covering, at this point has been mixed, and some carry-on with an attitude that we called very American (do as I please mostly) but doesn't work in a health emergency. I don't disagree with the IMF cutting their 'global growth' targets for the year, it all conforms to my concern about Summer 'if' we didn't get a solution quickly, and we didn't. Concern about this is part of my warning all month for correction, but not in all sectors, and at the same time watching Oil & Banks given stress tests, as well as the difficulty of technology and COVID-19 benefiting stocks alone holding up the broader market, which isn't possible. (The broader market has internally been in correction for about 3 weeks now, while the supercaps gave illusions of strength in the S&P, as I've noted essentially daily.)

Technically our targets were reached weeks ago, around June 8 we had a peak in broad participation, and candid pundits or reporters will acknowledge that their optimism was excessive. My view was that it was struggling in a range, limited in a few ways noted for big-caps, and sustained by much faith in the Fed, which for sure matters, but it was insane to expect the Index to simply progress a lot.  

That is part of why I've contended we'd not get out of June without correction, so in a sense we've been in it for weeks; but segmented in a bifurcated market you of course recognize. My concern about a 'buyers strike' ahead of 'stress tests' as well as a darker concern about what might be attempted over the 4th of July, is also lurking in my thinking. Perhaps not as much as the COVID-19 surge, but social unrest isn't helped with this backdrop, and might not be so evident if not for it.