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The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Monday's Headlines

1. US markets split as tech stocks lead

2. Saudi Arabia makes surprise oil-production cut

3. Bitcoin is halving its day

4. May trends to keep an eye on

5. Big investors fear a resurgence

Markets Closed

Dow
24,221.99
−109.33 (-0.45%)

S&P
2,930.19
+0.39 (+0.01%)

Nasdaq
9,192.34
+71.02 (+0.78%)

VIX
27.57
−0.41 (-1.47%)

Bitcoin
$8,659.52
−$103.34 (-1.18%)

US 10-Yr Yield
0.726
+0.044 (+6.45%)

Image credit: Ascent/PKS Media Inc./Getty

Markets Today

U.S. markets rallied from earlier losses but could not manage gains, save for tech stocks, as the Nasdaq posted its sixth consecutive day in the green. That's been the pattern so far in May, so why break it? The S&P 500 also closed in positive territory, driven by the FAAMG stocks, as usual.

Financials, industrials, and transports all fell today as the strength of a future economic rebound remains in doubt. The U.S. Treasury Secretary said yesterday that unemployment may already be at 25%. In Germany, one in five companies cut jobs last month. Companies are just trying to survive the next few months, so hiring back their workforces may be on the back burner until they absolutely need to.

Cautious investors are split between worrying about the strength of a recovery and a resurgence of the virus later this year. With markets rallying 30% since their March 23rd lows, valuations have come into question...just not for the biggest stocks in the market that are driving all the gains.

Reality Check: This is the London Tube this morning. I'm not ready for that.

photo courtesy: metro.co.uk

Headlines:

Trump administration officials are in talks with chip makers Intel and TSMC to build factories in the U.S., according to The Wall Street Journal. The government wants to reduce U.S. dependence on advanced chips produced in China as global supply chains are disrupted. TSMC is in talks with officials at the Commerce and Defense departments and Apple.
Saudi Arabia announced a surprise cut to oil production to the lowest levels in 18 years as it tries to recover from an energy crisis that has devastated the kingdom's finances. Saudi Arabia said it would cut oil output by another 1 million barrels a day on top of what it already agreed with OPEC allies. Oil futures rose, and Kuwait and the United Arab Emirates followed up with additional cuts of their own.
Chesapeake Energy warned Monday that it may not be able to stay in business as weak oil and natural-gas prices endanger its ability to pay down tens of billions of dollars in debt. The company said it has hired advisers to explore options including bankruptcy and raised doubt about its ability to remain a "going concern" as it reported a first-quarter loss of about $8.3 billion, compared with a loss of $21 million during the same period a year earlier. Chesapeake wrote down the value of its oil and gas assets by about $8.5 billion.
Avianca Holdings SA, the Colombian airline, filed for Chapter 11 bankruptcy after travel bans across the region forced it to ground its fleet. Avianca, which counts United Airlines Holdings Inc. and Kingsland Holdings as stakeholders, filed for protection from its creditors, listing as much as $10 billion in liabilities. The company said it will not make bond payments due Monday.
Argentina edged nearer a default after being forced to extend the deadline on its offer to restructure $65 billion of foreign debt, according to Bloomberg. Creditors, who rejected the initial proposal, now have until May 22nd to agree. Argentina's terms also include a three-year grace period before any payments are made.
Tesla has sued California's Alameda County for forcing it to keep its Freemont factory closed. The lawsuit accuses local officials of going against state-level orders that allowed businesses classified as "critical infrastructure" to operate during the lockdown. CEO Elon Musk has also threatened to move the company's headquarters to Texas or Nevada.
The U.K. government is expected to outline its "conditional plan" to reopen the economy in a 50-page document. The reopening will take place gradually in stages and will depend greatly on how the outbreak evolves. The country has been under lockdown since March 23rd. People who cannot work from home are being "actively encouraged" to return to work.
The Bitcoin halving event is happening today, and crypto traders are watching it like the Super Bowl. Like all things crypto, it's complicated, but basically the value of mining a bitcoin is cut in half around every four years in order to for bitcoin's inflation rate to keep decreasing until it reaches 0. This process is necessary for bitcoin's inflation rate to keep decreasing until it reaches 0. Still confused? Read more here.

Two Big Themes in the Markets

If you are a regular reader and global markets observer, you already know these themes well, but they have become even more pronounced in the last few weeks.

One is the dominance of mega-cap growth stocks and technology as the drivers of overall market performance and relative strength.

The other is the continuing and relentless outperformance of the U.S. over the rest of the world. As our pal JC Parets of AllStarCharts notes, the Wilshire 5000 has been dominating every Global Index over just about every time frame, from this week to the trailing year for a lot of years. The Wilshire 5000 is a market cap weighted index of about 6,700 of the biggest U.S. stocks. Size has mattered.

It's worth pointing out that most of the economists and global equity strategists we read and speak with on a regular basis believe the first trend may be turning, but the second will persist for the next several years, at least.

What Is Everyone Worried About?

The Big Money, aka institutional investors, are worried about a second wave of COVID-19 sweeping the globe, according to ISI Evercore's most recent survey. Their next biggest fear: Valuation. That's a clear sign that the belief in the stock market's recent rally is growing thin. Institutions have been moving money out of stocks in huge piles lately, even though the money that is in the market is pushing it higher.

Individual Investors Are Split

Folks like us have mixed feeling about the markets right now. In our reader survey you told us that you've been investing more, especially younger readers, while older readers have been pulling back on our risk reins and moving towards more conservative investments.

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(chart courtesy YCHARTS)

Shares of Cardinal Health are up by nearly 7% after the healthcare services company beat its Q3 earnings estimates by a wide margin. Advanced Micro Devices' stock price rose by nearly 5% following the semiconductor company's strong first-quarter revenue results.

Shares of Under Armour are down by over 10% after the sports apparel company reported a loss in Q1, revenue falling short of estimates, and a sudden loss of social media followers. Host Hotels & Resorts' stock price fell by 8% once it was determined that the real estate investment trust had suffered a loss of over 40% YTD.

Word of the Day

Relative Strength

Relative strength is a technique used in momentum investing. It consists of investing in securities that have performed well, relative to their market or benchmark. For example, a relative strength investor might select technology companies that have outperformed the Nasdaq Composite Index.

While the goal of value investing is to buy low and sell high, the goal of relative strength investing is to buy high and sell even higher. As such, relative strength investors assume that the trends currently displayed by the market will continue for long enough that they can realize a positive return. Any sudden reversal to that trend is likely to lead to negative results.

photo courtesy Bricklin.com

Today in History

May 11th, 1979:

Software developers Dan Bricklin and Bob Frankston introduce Visicalc, the first electronic spreadsheet. Suddenly the PC can save hours of tedious work for its users—and suddenly investment bankers have a tool that enables them to calculate changing values of leveraged buyouts and corporate mergers almost instantaneously. The spreadsheet is one of the secret driving forces behind the LBO and takeover boom of the 1980s, as people who can't even do their own math acquire the ability to place values on businesses.

http://www.bricklin.com/visicalc.htm