canva-image-3

So, what happened last week?

Stocks soared Friday as Wall Street rebounded from the sharp losses suffered in the previous session — the worst since the “Black Monday” market crash in 1987.

The Dow Jones Industrial Average closed 1,985 points higher, or 9.4%, at 23,185.62. Friday marked the Dow’s biggest-ever point gain. The S&P 500 climbed 9.2% to 2,711.02 while the Nasdaq Composite surged 9.3% to 7,874.23. The indices posted their biggest one-day gain since October 2008.

U.S. equities rallied to their session highs into the close after President Donald Trump also said 50,000 new coronavirus tests will be available next week. Trump also said he asked the Energy Department to purchase oil for the U.S. strategic petroleum reserve, boosting crude prices. Finally, a response!

Also, the Federal Reserve said it will start buying Treasuries across all durations, starting with 30-year bonds. “These purchases are intended to address highly unusual disruptions in the market for Treasury securities associated with the coronavirus outbreak,” the New York Fed said in a statement.

Apple and Facebook jumped more than 10% each to lead the so-called FAANG stocks higher. Google-parent Alphabet gained 9.3% while Amazon and Netflix both rose more than 6%. The market leaders always come back!

However, for the week, the major averages posted steep losses despite Friday’s sharp gains. The Dow lost 10% this week while the S&P 500 and Nasdaq slid more than 8% each. (See Bloomberg Market Matrix below)

What a week!

Dow Jones Industrial Average daily point change
week of March 9 2020

Dow Jones Industrial Average-1

The week ahead 

The US Federal Reserve has just announced in an emergency move this morning it is dropping its benchmark interest rate to zero and launching a new round of quantitative easing.

The Quantitative easing (QE) program will entail $700 billion worth of asset purchases entailing Treasury's and mortgage-backed securities.

 

Fed chart   

US Economic Data: 

The economic calendar includes the FOMC decision, but little else will command attention.  Initial jobless claims provide a post-virus look at the job market.  Housing data remains interesting.

Despite this, the media focus will remain on the coronavirus crisis.

briefing
Source: briefing.com
 


Trade recommendations for the week!

Working off the Andy Grove (Former CEO of Intel) quote in today’s weekly “Bad companies are destroyed by crisis, good companies survive them, great companies are improved by them”, here are two large, innovative, companies with a broad “moat” that should be able to manage this crisis with aplomb. These companies will dominate their industry for the foreseeable future-virus or no virus! Both are significantly off their highs and present an opportunity in our opinion.

1. Alphabet (GOOGL US) Mkt. cap US$836.5 Bn

Alphabet Inc. is a web-based service aimed at organizing information and improving the way people connect with information. It provides search capabilities across different media (web, images, video, maps, etc.), cloud-based services (GCP), software technologies, YouTube and online advertising to its users. Its advertising program, AdWords, is an auction-based program through which Alphabet Inc. generates most of its revenue. Alphabet (as Google) dominates search and online advertising and will continue to disrupt that space.

Alphabet's portfolio also includes companies active in technology, life sciences, investment capital, and research. Some of its subsidiaries include: Calico (a life sciences business called Verily looking to increase the human life span), Nest (smart homes), Google Ventures (a venture capital firm which invests in early stage start-ups and has backed more than 300 growing start-ups including Uber, Slack and Medium), Google Capital (a venture capital firm which invests in later stage established start- ups), Google X (Waymo / driverless cars, Google Glass and drone delivery), Google Fiber (an internet service provider), and Sidewalk (technologies to improve life in cities). Going forward it’s very likely that Google will develop a number of disruptive businesses from this portfolio.

Google will launch a website on Monday focused on providing up-to-date information about coronavirus education and prevention. The site is a separate project from the testing and triage website being built by Google sister company Verily, which will also go live Monday but will only provide services for California’s Bay Area. Google announced the timing of the site in a blog post Sunday. If successful it will be launched nationally.

Alphabet is held in four of Macrovue’s thematic portfolios or “Vues”: Artificial Intelligence”, Tech Stars”, “Social Media” and “Disruptive Technologies”

Alphabet  

Source: Bloomberg
2.  Illumina (ILMN US) Mkt. cap US $35Bn

Illumina develops, manufactures and markets integrated systems for the large- scale analysis of genetic variation and biological function. The Company provides a comprehensive line of products and services that currently serve the sequencing, genotyping and gene expression markets for genomic research centers, pharmaceutical companies, academic institutions and biotechnology companies.

Illumina remains the “800 lb gorilla” of next-generation sequencing tools used by life sciences and drug researchers to isolate and analyze genes. Its systems include the machinery and the software used to sequence pieces of DNA and RNA, as well as the means to put them through large-scale testing of genetic variation and biological function. Its proprietary BeadArray technology uses microscopic glass beads that can carry samples through the genotyping process. The tests allow medical researchers to determine what genetic combinations are associated with various diseases, enabling faster diagnosis, better drugs, and individualized treatment.

Currently Illumina absolutely dominates the gene sequencing space with a 70% market share and accounts for ~90% of DNA data produced. The latest coronavirus pandemic shows the importance of timely and accurate sequencing in order to combat the disease (the genetic makeup of COVID-19 is now known) and is allowing a number of researchers and biotechnology companies to try to create a vaccine or effective treatment.

Illumina is held in two of Macrovue’s thematic portfolios or 'Vues': 'The Genomics Revolution' and 'Disruptive Technologies'.  Click here for more information. 

Illumina
 Source: Bloomberg

Remember 1987 Black Monday...

A TIMELY PERSONAL NOTE from Clay Carter, Chairman of the Investment Committee at Macrovue

I was managing U.S. equity portfolios for the wealth management area of a large Texas bank when “Black Monday’ hit in 1987.

Markets had rallied strongly during the first half of 1987. By late August, the DJIA had gained 44 percent. In mid-October, a storm cloud of negative news reports undermined investor confidence and led to additional volatility in markets. The federal government disclosed a larger-than-expected trade deficit and the dollar fell in value. Over the weekend of Oct. 17 Treasury Secretary James Baker publicly threatened to de-value the US dollar in order to narrow the nation’s widening trade deficit. That was all it took and on Monday, October 19 investors wanted out.

Even before US markets opened for trading on Monday morning, stock markets in and around Asia began plunging. New Zealand’s stock market fell 60 percent. Investors moved to liquidate positions, and the number of sell orders vastly outnumbered buyers. The selling was exacerbated by a new product from US investment firms, known as “portfolio insurance,” which had become very popular.  It included extensive use of options and derivatives and accelerated the crash’s pace as initial losses led to further rounds of selling. Sound familiar? In the United States, the DJIA crashed at the opening bell and eventually finished down 508 points, or 22.6 percent still the biggest % decline in history.

After that eventful day, economists and financial commentators predicted a “global depression” caused by falling markets. It NEVER happened of course. Sound familiar? After an aggressive FED response providing liquidity to markets, stock markets quickly recovered a majority of their Black Monday losses. In just two trading sessions, the DJIA gained back 288 points, or 57 percent, of the total Black Monday losses. By year end the U.S. market was up 4% on the year. Less than two years later, US stock markets surpassed their pre-crash highs and then came the 1990s- a golden decade for equity investors!

bear market image
 

Market update

market update 1

Source: Bloomberg

(Asian Markets. Daily return middle columns. 5 day return far right) China markets still outperforming everything!

market update 2

Source: Bloomberg

Other Market Data: Friday’s Close

AUD .6149 -0.0054 (this am) 52 week low

Gold futures fell some 2.94% to 1529.83

Oil (WTI) -4.5% to 30.31USD / barrel

Bonds

The US 10-year Treasury yield jumped above 1% after clarity on government response.

Closed at 0.983% +0.13

Markets Department:

The Financial Media loves the term “bear market”. I prefer the term “correction” because that’s what it is!

FT calculations

Source: Financial Times

But that has made the U.S. market significantly cheaper. -1 Std. deviation cheaper!

FED

And we have the Federal response:

Fed will ramp up its balance sheet to fresh high. US Central Bank to inject $1.5tn to prevent 'unusual disruptions' in markets. Move designed to prevent ominous trading conditions from creating a sharper economic contraction. 

FED report

Chartist View from JC Paret’s All Star Charts:

“The percentage of stocks above their 200 day simple moving average. This is an indicator that gets quoted a lot in bull markets, but for me, it’s most helpful at the end of bear markets…

200 Day

For us, it’s not when the percentage of stocks falls below 20% or even 15%, the signal is when we’re back above it.”

Makes sense! Let’s be watchful.

According to Deutsche Bank economists just to put things into perspective: Current slowdown not driven by endogenous build-up of imbalance but rather by exogenous shock. Argues for current slowdown to be short AND deep. This is also what we saw during pandemic flu in 1918/19, where recession lasted only 7mths.

 

1918

And if it makes you feel any better - Markets fell more in '47, '62, and '87 though and managed to avoid a recession.

recession

For more information please call client services on 1300 720 292 today! or visit macrovue.com.au

 

The End!

More Posts