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The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

1. US markets give up gains on China concerns

2. US weekly jobless claims top 2 million for ninth straight week

3. US GDP falls 5.1% in Q1

4. Institutional money is hiding in the bond market

Markets Closed

Dow
25,400.64
−147.63 (-0.58%)

S&P
3,029.73
−6.40 (-0.21%)

Nasdaq
9,368.99
−43.37 (-0.46%)

VIX
28.59
+0.97 (+3.51%)

Bitcoin
$9,449.79
+$262.87 (+2.86%)

US 10-Yr Yield
0.705
+0.025 (+3.68%)

Image credit: AndreyPopov/Getty

Markets Today

U.S. markets were well on their way to a fourth straight day of gains until about 3:30 p.m. ET, when President Trump announced he would hold a press conference on China tomorrow. The U.S. does not like China's latest crackdown on Hong Kong, and it could potentially levy sanctions and other measures against the financial hub to retaliate against Beijing. That dredged up all kinds of old 2018–19 fears about trade wars, retaliatory measures, and investor uncertainty. All major markets gave up their gains, closing deep into the red.

There were plenty of other reasons for investors to take their risk helmets off today, including another 2.1 million U.S. weekly jobless claims, bringing the 10-week total to more than 40 million out-of-work Americans. We also learned that GDP fell a mere 5% last quarter, the biggest drop since the last recession, but nothing compared to what is coming. Investors have numbed themselves to this news over the past six weeks, and they have been buying on the hope of a recovery. At least, some of them are. Money flow reports show institutional investors are hiding in bonds and money market funds, following the Fed, and waiting for the fat pitch to swing at stocks.

Did they miss the bottom? Or do they know that the economic pain will eventually knock the armor off the stock market? With the U.S. and China at it again, their thesis may have been emboldened. We'll see.

Headlines:

Gross domestic product—the value of all goods and services produced across the economy—fell at a 5% annual rate in the first quarter, adjusted for seasonality and inflation, the Commerce Department said Thursday. The revised number marked the largest quarterly rate of decline since the last recession, but that record will be broken again when GDP for the second quarter is reported.
President Trump is taking aim at social media giants like Twitter and Facebook with a new executive order announced this afternoon. The order would seek to limit the broad legal protection that federal law currently provides to social media and other online platforms, in addition to other measures. This comes after the President threatened "big action" against Twitter after it attached warnings to a pair of his tweets about mail-in ballots on Tuesday.
The White House won't issue a formal economic forecast showing the extent of the U.S. downturn precipitated by the coronavirus pandemic, according to Bloomberg. The forecast is traditionally included in a part of the White House budget process called the "mid-session review," which is usually issued in July or August. It follows the president's budget proposal, released in February, and is intended to evaluate whether economic projections in that document are holding up.
$1 trillion worth of investment-grade corporate debt sales had been brought to market in the first 149 days of the year. In 2019, a fairly typical year in the bond market, that figure wasn't reached until November.
Nissan recorded a $6.2 billion loss in the year ended in March after it took big write-downs as part of a restructuring plan that aims to make the car maker leaner and more profitable.
American Airlines is planning to cut 30% of its management and support staff, a reduction of about 5,000 jobs. Despite its pre-pandemic liquidity, the government bailout, and cash raised in the capital markets, the company needs "to reduce our cost structure, including our most significant expense—the cost of compensation and benefits," said the staff note seen by CNBC.
Boeing is resuming production of the 737 MAX at the company's Renton, Washington, factory. This specific model was involved in two crashes that killed 346 people last year and remains grounded since it still hasn't received FAA clearance. The company also said it is laying off 6,770 U.S. employees this week.
Britain's GlaxoSmithKline will manufacture 1 billion doses of its pandemic vaccine adjuvant system next year. Adjuvants are substances added to vaccines to cause a stronger immune response and can reduce the amount of vaccine protein required per dose, helping protect more people. Any profits will be reinvested in coronavirus-related research and long-term pandemic preparedness.
The English Premier League is planning a return to action on June 17 after a three-month pandemic hiatus. The 20 Premier League clubs voted on Thursday to approve a plan, known as Project Restart, that would see the final 92 games of the season played behind closed doors in the hopes of finishing some time in late July or early August. Should the scheme work, Premier League clubs would save themselves from reimbursing at least $600 million to broadcasters, according to the WSJ.

Image credit: Julian Finney/Getty

The Bad and Good News in Today's Unemployment Report

More than 40 million Americans have lost their jobs in the past ten weeks as 2.1 million people filed for first-time unemployment claims in just the past week. The weekly numbers continue to trend lower, but they are still astronomically high. California, New York, Georgia, and Florida had the highest claims in the nation.

The only good news in the report was that continuing claims, which tally Americans' ongoing benefit claims in state unemployment programs, fell to 21.1 million for the week ended May 16. That suggests the job market is starting to rebound as businesses reopen and laid-off workers are brought back onto the payrolls.

The unemployment rate, currently at 14.7%, is expected to surge to 20% or higher when the non-farm payrolls report for May is released a week from tomorrow. That would be the highest since the Great Depression, when it peaked at an estimated 25.6%.

chart courtesy Fidelity Investments

What if This Is the Beginning of a New Bull?

The U.S. stock market has brushed aside the economic calamity and rallied 36% since hitting its lows on March 23. That's the fastest fall and retracement in history, and many have called it a bear market rally. It may very well be, but the velocity of the recovery may be telling a different story.

According to Justin Timmer of Fidelity Investments, the 70% retracement from high to low (the fall and the recovery) has never not signified a new bull market. The black line in the chart is 2020. The blue line is 2007 (Apologies for the tiny print and chart—you can see the original here). The collapse and recovery look very similar compared to other recoveries in the past.

Will it be different this time?

chart courtesy Bespoke Investments

Money Keeps Flowing Away From Stocks

Despite the recovery rally, money keeps leaving the stock market. To be sure, the money that is still in the market has been buying stocks, driving it higher, but institutional investors have been bailing out of stocks week after week.

The latest figures from the Investment Company Institute, via Bespoke Investments, shows money moving out of domestic and international equity and mutual funds and into fixed income mutual funds and ETFs, cash, and money markets.

Institutions, in other words, have been following the Fed since it entered the corporate and government bond market. The Fed has yet to unleash its massive spending power on the bond market, but these investors are positioning themselves for that gusher of money to come flowing in.

More News:

Top Gold Stocks for June 2020

Top Industrial Stocks for June 2020

Top Marijuana Stocks on the NASDAQ for June 2020

SPONSORED BY FIDELITY INVESTMENTS
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Attracting the next generation of talented associates is a top priority for the Fidelity leadership team. Here's what they're doing to navigate the current crisis.
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(chart courtesy YCHARTS)

Shares of Dollar Tree are up by 11.5% after the discount retailer chain reported Q1 earnings results that beat analyst expectations. Alexion's stock price rose by nearly 8% as the pharmaceutical company's patent case regarding its immunosuppressant Solaris seems to be coming to an end.

Shares of HP are down by over 12% amid the information technology company reporting Q2 revenue results that missed analyst estimates. American Airlines' stock price fell by over 8% after announcing that it's planning to layoff 30% of its staff.

Word of the Day

Retracement

A retracement refers to the temporary reversal of an overarching trend in a stock's price. Distinct from a reversal, retracements are short-term periods of movement against a trend, followed by a return to the previous trend. A retracement by itself does not say much, but when combined with other technical indicators it can help a trader identify if the current trend is likely to continue or if a significant reversal is taking hold. It is essential to determine the difference between a reversal and a short-term retracement.

image courtesy Philadelphia Inquirer

Today in History

May 28, 1962:
The Dow Jones Industrial Average suffers its worst one-day point drop since the Crash of 1929 as it sheds 34.95 points, or 5.7%. On "Blue Monday," volume is a huge 9.35 million shares and the ticker runs two hours and 28 minutes late in recording the day's closing prices.