Libratus

SPX at the crossroad- Macro overview and economic indicators

SPCFD:SPX   S&P 500 Index
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SPX has been going on a W ride for a while and is currently only down around 15 percent from its mid Feb high, putting it in the midpoint of the correction and recession phase. If this trend continues on, it is safe to expect that SPX will more likely to challenge its mid Feb high than retest its March 23 low.

However, the current resistance lvl seems to have stalled its momentum somewhat as the weekly candle indicates an indecisive market sentiment.

It is worth to see if there is an accelerating net inflow into bond and equity fund and net outflow from liquid assets such as money market fund & saving deposits and total deposits at US commercial banks in the upcoming weeks. In order to sustain the rally, more investors need to to put their money back into the equity market.

Some encouraging news and signs are already happening-

*Stocks have vastly outperformed bonds by 11.92 percentage points during the last 20 trading days

*Call options far outnumbered put options

*VIX is steadily declining and briefly went below 40 few days ago.

*Remdesivir- Early result of severe clinical trial is encouraging. Few caveats- Still wait for the result of full clinical trial and more data from randomized controlled trial is needed. Also, the severe trial was conducted without the placebo group, meaning researchers don't not know what would have happened to these patients had they not been given the drug.

*Abbott recently announced new coronavirus antibody test that could do up to 20 million screenings in June. This antibody testing allows us to know if someone has been previously infected, if recovered from the infection provides the immunity and how long antibodies stay in the body.

*Exponential growth has slowed down a little bit the past few days, but the fatality rate is still climbing. Hospitalized # seems to have flattened the past few days even though the positive testing rate has gone up to nearly 20%. Overall, the growth rate has gone down to the average of single digit 7 % compared to the double digit growth rate few weeks ago. It is safe to assume that US is potentially transitioning from the stage of slowed down exponential growth to the stage of flattened curve.

On the other hands, all economic indicators and warning signs point to the rather bleak outlook-

*Vast majority of stocks is still below SMA200 and SMA50

*The number of stocks hitting 52-week lows exceeds that of hitting 52-week highs

*Retail sales tanked 8.7% in March, the largest decline since the government started tracking retail sales in 1992

*March CPI fell 0.4%, the largest monthly decline since Jan.2015

*Industrial production dropped 5.4% in March, largest drop since 1946

*The March PMI registered 49.1 percent, an 1 percentage drop from the February. The New Orders Index suffered a drastic decline of 7.6 percentage due to the export contraction, suggesting a weakening demand from customers.

*Initial claim is down from its peak while continuous claim continues to surge

*unemployment rate is projected to be as high as 20%

*Crude Oil declined 67.50% since the beginning of 2020

*The NAHB/Wells Fargo Housing Market Index ( HMI ) Builder confidence in the market for single-family homes plunged 42 points to 30 in April, the lowest point since June 2012

*Building permits in the United States fell 6.8 percent, the sharpest drop since July 2015

*Housing starts in the US plunged 22.3%, the biggest decline in housing starts since 1984

*Small business rescue loan program already hit the $349 billion limit

*Massive credit downgrade as corporate earning approaches and many corporate bonds fall to distress lvl

*Market-cap to GDP is still in the overvalued zone

In the midst of the Covid-19 crisis, central bank launched its latest program that allow foreign central banks to convert their Treasury securities into dollars in order to alleviate the USD shortage problem. This was a response to the ever-increasing liquidity crunch that is rarely seen in traditionally the most liquid market in the world. In recent days, treasury yields have not fallen like they usually do in the past during the event of massive sell-offs in equities. Other worrisome signs are the elimination of reserve requirement and the inclusion of previously excluded category of less-than-investment grade corporate bond to the Fed asset purchases. The result of these drastic measures is sure to ballon the Fed balance sheet , federal deficit and debt-GDP ratio in the near future, further compounding the U.S Debt dilemma.

Lastly, the potential danger of second wave infection in China cannot be overstated. The fragility of the global supply chain is already being exposed during the pandemic and the problem will be further exacerbated if the world's second largest economy fails to prevent the re-emergence of virus.

Overall, I am cautiously optimistic. There are many potential events and developments to pay attention to such as the serious supply chain bottleneck and essential worker shortage that could trigger the massive sell-off. Also, I am waiting to see how the market will react to the upcoming quarterly GDP, unemployment # and corporate earning.

Stay safe out there my friends!


Please do your own due diligence. Not the investment advice, just my personal take on the current situation.






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Good work, thanks
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Libratus elliotcule
@elliotcule, Glad you found it helpful!
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