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The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Wednesday's Headlines

1. Global markets continue to surge

2. Many countries are entering overbought territory

3. US Treasury yields are stubbornly low

4. What are your favorite stocks?

Markets Closed

Dow
26,269.89
+527.24 (+2.05%)

S&P
3,122.87
+42.05 (+1.36%)

Nasdaq
9,682.91
+74.54 (+0.78%)

VIX
25.66
−1.18 (-4.40%)

Bitcoin
$9,601.64
+$80.01 (+0.84%)

US 10-Yr Yield
0.761
+0.081 (+11.91%)

Image courtesy Jason Jones Travel Photography/Getty

Markets Today

Global markets surged again as the momentum is clearly behind equity markets in the U.S. and around the world. Just as markets plunged in the early days of the pandemic to unreasonable lows, they may have bounced back to unreasonable highs, given the economic environment.

This has been the greatest 50-day rally in the history of the S&P 500. The benchmark is up 42% from its lows in March, while the DJIA and the Nasdaq are up 43% and 45%, respectively. Technical analysts like to talk about trends consolidating in one direction or another. As they say, consolidations tend to resolve in the direction of the underlying trend. If you look around and inside the world's equity markets, consolidations are resolving higher all over the place.

Gold and the U.S. dollar have been falling, as you would expect given the shift to risk assets. The yield on the U.S. Treasury, however, has remained stubbornly low, which is another sign of the stock market's disconnect from the economy.

We are living in a world of extremes.

Headlines:

The U.S. plans to block Chinese airlines from flying passengers to and from the U.S. by June 16, saying China has failed to approve U.S. airlines from conducting passenger service to China. Eight-and-a-half million flew between the two countries in 2019.
U.S. employers cut 2.76 million private payrolls in May, according to a report Wednesday from ADP, as the coronavirus pandemic weighed on domestic economic activity and the labor market. The job cuts reflected in ADP's report came in again at a historically high level, but it was well below the figure many market participants were bracing to receive. April's payroll report was revised up by 679,000 jobs.
Walmart said it has removed firearms and ammunition from some of its stores' sales floors, as protests sparked by the death of George Floyd continue across the U.S. and, in some cases, have led to looting. The retailer said Wednesday that the items are still available for purchase, but they are now kept in a secure room.
American Express has pulled back on adding new credit-card customers because it can't get a clear picture of consumers' financial health and employment trends. American Express itself committed to making no job cuts this year as it works through the impacts of the coronavirus pandemic.
China's service sector saw its fastest expansion in a decade last month. The Caixin China General Services PMI rose from 44.4 in April to 55 in May, the highest level reached since Oct. 2010. Eurozone services and composite PMIs remained in contraction territory (below 50), according to IHS Markit. The severe downturn in the U.K.'s service sector activity continued in May with PMI at 29, up from 13.4 in April.
Luxury conglomerate LVMH may back out of the deal to buy Tiffany & Co., according to a report from Women's Wear Daily. Board members are reportedly concerned about the novel coronavirus outbreak, the civil unrest in the U.S., and Tiffany's ability to cover its debt covenants at the end of the transaction.
Australia's economy shrank for the first time in almost 30 years. GDP declined 0.3% in the first quarter of 2020, according to government figures, and Treasurer Josh Frydenberg told reporters the country is in a recession.
Japanese regulators have warned the nation's banks for the first time about the risk of investing in overseas securitized corporate loans, which have run into trouble from a wave of U.S. bankruptcies, according to Bloomberg.
The worldwide smartphone market is forecast to decline 11.9% year-over-year in 2020 with shipments totaling 1.2 billion units, according to the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker. The forecast follows the largest year-over-year decline in history in the first quarter of 2020 (1Q20).

chart courtesy Bespoke Investments

Are Global Markets Overbought?

In nearly every major global market, the rally has been swift and consistent. Given poor economic data on every continent, every major market also looks overbought, according to Bespoke Investments. Overbought means a security or index, in this case, is believed to be trading at a level currently above its intrinsic or fair value. Since it's hard to find the fair value for any stock market right now given the plunge in corporate earnings and the decay of economic activity, buyers are relying on hope and faith.

Markets were arguably oversold on the way down, so it goes both ways.

chart courtesy LPL Financial

Government Bond Markets Not Responding

One asset that is not responding is the 10-year U.S. Treasury in terms of its yield. It's been stubbornly low and remains lower than where it was when the S&P 500 bottomed on March 23. That was not what happened back in 2008–09 when the Fed started its quantitative easing program, buying hundreds of billions of dollars in government securities.

There may be a few reasons for this, according to LPL Financial:

Inflation remains low and it does not look like it's coming back anytime soon.
U.S. Treasury yields remain attractive relative to other government bonds—especially those with negative yields.
The Fed and other central banks are buying bonds, creating added demand.

Normally, this might be a warning sign, but for now, it just looks like another sign that the stock market is way ahead of the economic recovery.

What Stocks Have You Been Buying?

Some more goodies from our recent reader survey, and thanks again for participating. We are going to run it again so we can have a record of your sentiment as we barrel through these choppy market cycles this summer.

By and large, Amazon was everyone's favorite stock, regardless of age or income. Call it the wisdom of the crowds, because it's also the most popular stock in index funds, mutual funds, and ETFs. It's up 34% year-to-date, so if you own it or bought it on the dip, well played.

Among older investors who were around in 2008, your other favorites include blue chips like Coca-Cola, Intel, and McDonalds. Some of you are betting on biotech and maybe a vaccine with Pfizer and Gilead among the top picks.

The one wildcard was Tesla, which is always a wild card. Long term investors are very happy with this stock, and so are short-timers. It's up 111% in 2020.

(Remember this??!!)

More News:

5 Companies Owned by Alibaba

Charts Suggest Innovative Tech Stocks Are Headed Higher

Crude Oil Entering Zone of Heavy Resistance

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(chart courtesy YCHARTS)

Shares of Coty are up by over 14% after the cosmetic company began discussing a potential collaboration with Kim Kardashian. Simon Property Group's stock price also rose by 14% as the largest shopping mall operator in the U.S. directly benefited from the economic reopening and a stronger-than-expected rebound for retailers.

Shares of Campbell Soup fell by 6% over concerns that the packaged-food company will soon return to a normal, slower growth rate. The hits keep coming for the world's largest gold mining company, as Newmont's stock price fell over 4% after gold prices ended at their lowest in more than three weeks.

Word of the Day

Consolidation

Consolidation is a technical analysis term referring to security prices oscillating within a corridor and is generally interpreted as market indecisiveness. Said another way, consolidation is used in technical analysis to describe the movement of a stock's price within a well-defined pattern of trading levels. Consolidation is generally regarded as a period of indecision, which ends when the price of the asset moves above or below the prices in the trading pattern.

Image courtesy loc.gov

Today in History

June 3, 1880:

Wireless telecommunication gets a quick false start when Alexander Graham Bell transmits the first message on his new "photophone," which bounces sound off a mirror and uses a beam of sunlight to project the mirror's vibrations onto a photosensitive receiver. Although Bell was never able to commercialize his photophone, modern fiber optics work on the same basic principle.

http://memory.loc.gov/ammem/today/jun03.html