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Seeking Terra Firma: After Worst Week In Years, Can Stocks Engineer A Comeback?


  • Chinese economic data over weekend comes in worse than expected

  • Hopes for fiscal stimulus helps send Asian stocks higher, but U.S. still in the red

  • Big week for data with jobs report, manufacturing numbers ahead

Climbing out of this ditch is going to be an uphill battle. That’s the takeaway after a night when futures on the Dow Jones Industrial Average ($DJI) traded in a huge range of 1,000 points and struggled to find footing.

Markets were all over the place overnight as people continue trying to get a grasp of what the virus means for global supply chains, and for more down-to-earth kind of things like whether people are going out to restaurants. By the time the opening bell approached, the red vibe remained here in the U.S. and Europe.

However, Asian stocks revived a bit as analysts said maybe this deep economic dive could make governments decide to throw in some fiscal stimulus.

Hopes for a stimulus in China got more fuel over the weekend as a manufacturing metric there plunged to the worst level not just since the 2008 financial crisis, but in history (well, at least since these records started being kept). China’s official manufacturing purchasing managers’ index (PMI) dropped to 35.7 in February from 50.0 in January, below the previous low of 38.8 in November 2008.

On another China-related note, casino revenues plunged 88% in Macau last month, media reports said. This isn’t good news for travel-related stocks like resorts and casinos. They came under pressure again in futures trading before Monday’s open.

On the Home Front

Back home, there’s a weird kind of situation where people are mindful about watching the virus spread but are reacting in contrary ways. Anecdotally, restaurants still seem packed. At the same time, you can’t get a cart at Costco (COST) because everyone is stocking up. It makes you wonder how much of the fear is being spread by media—social or otherwise.

Goldman Sachs (GS) came out with a note over the weekend saying it expects the Fed to cut rates by 50 basis points, maybe before the March 18 meeting. Looking at the 10-year yield, where investors forced rates down to all-time lows just above 1% early Monday, it’s unclear how much of this is built into the market.

People are trying to figure that out. Is the market forcing the Fed, or will the market keep pounding the rate no matter what? That’s the kind of conundrum that everyone is trying to trade around. You’ve got CME futures now pointing to a 100% chance of a 50-basis point cut by the March meeting. A couple of weeks ago, there were 90% chances of no cut at all. That’s the kind of crazy situation we’re in.

If you’re bullish, you’re probably starting the week looking for those “green shoots” people talk about. Well, maybe consider a few this morning. Shares of Apple (AAPL), Microsoft (MSFT), Verizon (VZ), and Amazon (AMZN) all climbed into slightly greener territory in futures trading ahead of the opening bell. At times like these, investors are likely going to have to focus on some of the big gorillas like those as they seek direction. In another positive sign, crude oil is trading slightly higher this morning.

Calendar Page Turns with Fresh Retail Earnings Up Next

Remember that embattled oil company executive a few years ago who said, “I want my life back” after his company’s accident caused a massive crude spill in the Gulf of Mexico?

Investors might be feeling kind of like that by this point, wondering when analysts and the media will stop focusing on coronavirus and return to talking about typical market stuff like earnings and data. All of that goes on even when the entire market is focused on so-called “black swan” events, which some analysts say the coronavirus might be.

If you can pry your eyes away from the virus headlines, remember that a few big retailers have earnings coming up this week. Those include Kohl’s (KSS) and Target (TGT) tomorrow morning.

Hearing executives talk about holiday season sales might feel a bit surreal when you consider how long ago that was and everything that’s happened since. Still, it might be worth tuning into these calls to hear how the companies are handling any virus-related disruptions to their supply chains, and to get a sense of whether executives see this improving or getting worse in weeks to come. It’s always good to get an insider’s view.

Dollar Tree (DLTR) and Ross Stores (ROST) are other notable retailers reporting this week. There’s also data ahead, with the February jobs report looming this Friday.

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Article Written By: JJ Kinahan

Chief Market Strategist (TD Ameritrade)

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