“Increasing State of Uncertainty, Fear & Volatility” – Vista Partners’ Weekly Market Wrap – March 6, 2020

This week’s market sessions were filled with an increasing perception and reality of uncertainty, fear and market volatility in concert with the over-reporting of the coronavirus situation, an associated waning global growth picture, and a counter-story from a slate of relatively positive economic reports. The fed did their part to alarm us with an “emergency” interest rate cut on Tuesday morning that increased worries as well. The Fed now is expected to cut rates by at least another quarter when they meet on March 17-18. US treasuries were snatched up again this week while yields plummetted adding fuel to the fire as the 10-yr yield dropped to an all-time low at .71%. The refinancing machine is in gear and going at full tilt as a result.

With that said, the somewhat positive economic reports that surfaced were as follows:  On Monday, we received the following: The ISM Manufacturing Index Report for February confirmed an expansion reading of 50.1, Total construction spending report also confirmed an increase of +1.8% month/month in January, The Residential spending report confirmed an upward move of +2.0% month/month, & the nonresidential spending reports showed an increase of +1.6% month/month. On Wednesday, we received the ISM Non-Manufacturing Index report for February which came in at a 57.3% reading. The ADP Employment Change Report confirmed an increase of 183k nonfarm payrolls in February. The weekly MBA Mortgage Index Report jumped +15.1% while the Refinance Index Report jumped even higher by +26%. However, the Purchase Index dropped by -2.7%. The Federal Reserve’s March Beige Book stated that activity expanded at a modest to moderate pace during the survey period. On Thursday, we received somewhat positive economic reports that surfaced again today. The Nonfarm business sector labor productivity report showed a move higher by +1.2% in Q4. However, Factory orders went down -.5% month/month in January while shipments dropped -.5% month/month in January. Initial claims for the week ending February 29 also went down by 3k to 216k while continuing claims for the week ending February 22 rose by 7k to 1.729M. On Friday, February nonfarm payrolls confirmed a jump by 273k while February private-sector payrolls jumped by 228k. February unemployment rate came in at 3.5% while February average hourly earnings moved higher by +.3%. The average workweek in February came in at 34.4 hours & the labor force participation rate was flat at 63.4%. The trade deficit moved down to $45.3B. Wholesale inventories moved lower by -.4% in January while total consumer credit moved higher by $12B in January.

The FAANG stocks closed mostly down overall this week: Facebook (FB) $181.09/share, -2.20% ($192.47/share a week ago), Amazon (AMZN) $1,901.09/share, -1.19% ($1,883.75/share a week ago), Apple, Inc. (AAPL) closed at $289.03/share, -1.33% ($273.36/share a week ago), Netflix (NFLX) $368.97/share, -1.02%, ($369.03/share a week ago) & Alphabet (GOOG) $1,298.41/share, -1.56%, ($1,339.33/share a week ago.) The U.S. Dollar Index also weakened by -.39% today to end the week at 98.13.  

Oil prices dropped significantly this week to end at $41.32/bbl as OPEC et. al. failed to agree to reduce output coupled with global growth concerns and disruption. 

Gold prices closed at rose to $1,674.20/0z. up from $1,587.30/oz & silver closed higher at $17.35/oz up from $16.68/oz last Friday.  

After trading closed after a week of volatility, the markets actually finished trading up except for the Russell.  The Dow ended the week at 25,864.78, up +1.8% and is now down -9.4% YTD. The S&P 500 ended the week at 2,972.37, representing a +.6% weekly gain and is now down -8% YTD. The Nasdaq Composite closed at 8575.62 on Friday, representing a weekly +.1% upward move and is now down -4.4% YTD. The Russell 2000 moved lower closing at 1,4749.22 representing a weekly -1.8% drop and is now down -13.1% YTD. 

The Velocity Shares Daily 2x VIX Short-Term ETN (TVIX), a leveraged bet against the market, was a big winner again this week as it ended at $169.90/share up +21.89% today (after hitting $201.55 in intraday trading) & up from $104.5/share last Friday’s close.

With all that happened this week, I believe that volatility will continue to increase but that we might still see a sharp “V” form in the market when we look back at this period sometime soon instead of the overall small “v” we saw this week. I also see that the same tech components that are overweighted and over-owned in the indices (The FAANGS, etc.) that drove the bull market to new levels will regain momentum and pull the markets back. I am also looking to add dividend/yield plays in various sectors that have been driven down significantly as I believe that many will be seeking to find yield in this new nearly 0% interest rate environment and we could see out weighted gains while getting paid higher than average income. Please feel free to share any ideas and note that one way or another it is time to keep the seatbelts tightened as we should expect further market gyrations. 

Investing & Inspiration

“If all the economists were laid end to end, they’d never reach a conclusion.
-George Bernard Shaw

“The riskiest thing we can do is just maintain the status quo. I get up at 4:30 in the morning, seven days a week, no matter where I am in the world. I think it is important for people who are given leadership roles to assume that role immediately. What I’ve really learned over time is that optimism is a very, very important part of leadership.” – Bob Iger, Former Ceo of Disney

“In the short run, the market is a voting machine. But in the long run, it is a weighing machine.” – Ben Graham

“In investing, what is comfortable is rarely profitable.” -Robert Arnott

“The fundamental law of investing is the uncertainty of the future.” -Peter Bernstein

“How many millionaires do you know who have become wealthy by investing in savings accounts?” -Robert G Allen

“Greed is all right, by the way. I think greed is healthy. You can be greedy and still feel good about yourself.”-Ivan Boesky

“Michael Marcus taught me one other thing that is absolutely critical: You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.” -Bruce Kovner

“The policy of being too cautious is the greatest risk of all.” -Jawaharlal Nehru

“I talk about macro themes a lot because they are fun to talk about, but it is the risk management that is the most important thing. The risk control is all bottom-up. I structured the business right from the get-go so that we would have lots of diversification.” -Michael Platt

“Blaming speculators as a response to financial crisis goes back at least to the Greeks. It’s almost always the wrong response.” -Larry Summers

Tomorrow

We have a full week of trading next week and are due to receive the following significant economic data:

• Inflation on Wednesday
• Consumer sentiment on Friday