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Why the Market Looks Nervous — Data Dump (ICYMI)

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Tuesday’s up-day in stocks followed by Wednesday’s selling isn’t your run-of-the-mill down day following an upbeat prior trading session. The market looks nervous. 

Wednesday, all three major U.S. indices fell considerably, with the S&P 500 off as much as 2.8%. Year-to-date, the index is down 14%. It had fallen 34% from its all-time-high hit in February, well into bear market territory, as the coronavirus basically stopped the economy completely. 

All cyclical business are seeing sales hits of more 10% to 15%, fixed costs contributing to contracting profit margins, reduced dividends and buybacks and a dash to conserve cash as debt and liquidity become a problem. Defensive companies are still seeing normal business as usual, as people stock up on groceries and keep the heat and gas turned on. 

So the market rapidly priced in a recession. Bleak economic data, like unemployment likely headed toward 20%, manufacturing declining and March retail sales coming in at negative 8.7% is expected. As the spread of the virus decelerates across the globe, lockdowns begin to ease and central banks and governments shoot liquidity — in the form of cash and low interest rates — into the bank accounts of all economic actors, stocks have rebounded. The S&P 500 is up 24% from its 2020 low hit on March 23. 

Trading has been up and down in the past few days, but there are a few trends showing investors have a tilt toward safety. Before we give the sector-break down data dump, let’s point out one thing:

Earnings estimates for 2020 on the S&P 500 from company-specific analysts are down 12% year-to-date. Macro strategist think those analysts are still working down their models. One strategist -- the chief equites strategist at Goldman Sachs -- says earnings per share could fall 40% from previous expectations. And that’s before we talk earnings multiples, which of course reflect 2021 earnings, higher debt loads and more. 

We’ll have our next bull market very soon. It just may be wise to take a hint first. 

Data dump: 

So far this week, the S&P 500 is down 1.2%. 

The consumer staples like Walmart  (WMT) , Target (TGT) , Procter and Gamble  (PG) , Colgate Palmolive  (CL)  Coca-Cola  (KO) and PepsiCo  (PEP)  are up 2.8%, 5%, 4.3%, 1.7% and 3.8%, respectively to start the week starting Monday April 14. These stocks see little to no downdraft in sales during economic hardship because their products are mostly low-cost essentials. They pay solid dividends. They’re known as quality stocks investors flock to when risks to economic and earnings growth crop up. 

Utilities are in the same boat. The Dow utilities index is essential flat in the past two days.

The NYSE Healthcare Index is up 2.4% to start the week. Healthcare stocks also pose much less risk than they did early in 2020, as Senator Bernie Sanders, whose policies were seen as a threat to the health insurance industry, has dropped out of the presidential primaries. 

Lastly, the 10-year treasury bond price has risen significantly, with the yield falling to 0.65% from 0.75% during the week. The Federal Reserve is a big buyer of the bond, but other investors seem to be rushing into it, as seen by the outsized move into the bond compared to most days in the past few weeks. 

The point: investors may be positioning cautiously because they’re afraid of another market sell-off before we get that sustained bull market again. 

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