US markets marked a turbulent start to the month and fell on Friday after President Donald Trump revived a threat of new tariffs against China in response to the COVID-19 pandemic. The Dow Jones Industrial Average dropped 622.03 points, or 2.55 percent, to 23,723.69, with the S&P 500 losing 81.72 points, or 2.81 percent, to 2,830.71. The Nasdaq Composite plunged 284.60 points, or 3.2 percent, to end the session at 8,604.95.
Most European and the Maltese markets remained closed during 1st May as nations celebrated their Labour Day public holidays however the UK’s FTSE 100 slumped 2.3 percent as the mining and travel sectors were hit by the worries over reduced business activity from the coronavirus pandemic and the prospect of renewed US threats of trade sanctions on China.
Roche gets approval for antibody test
Swiss drugmaker Roche has won emergency approval from the U.S. Food and Drug Administration for an antibody test to determine whether people have ever been infected with the coronavirus, the Basel-based company announced on Sunday. Governments, businesses and individuals are seeking such blood tests to learn who may have had the disease, who may have some immunity and to potentially craft strategies to help end national lockdowns.
Thomas Schinecker, Roche’s head of diagnostics, said the company aims to more than double production of tests from about 50 million a month to significantly more than 100 million a month by the end of the year. Similar antibody tests have also been developed by companies including U.S.-based Abbott Laboratories Becton Dickinson and Italy’s DiaSorin.
Eurozone manufacturing output falls
German factory output shrank at the fastest rate on record in April and firms in the export-oriented sector cut jobs at the fastest pace in almost 11 years, a survey showed on Monday, as the new coronavirus crushed demand. Companies in Germany have been closing facilities and switching workers to shorter hours under a government scheme aimed at avoiding mass layoffs.
French manufacturing output has also fallen to record lows as the country has been under lockdown orders banning non-essential activities since mid-March. The prospect of a gradual unwinding from May 11 is offering little relief to firms expecting a long slog back to work.
Ackman’s Hot Streak Continues, Dumps Berkshire, Says ‘We Can Be More Nimble’
Bill Ackman’s hot streak continues. This comes after he announced that his Pershing Square hedge fund has returned an average of 25% this year. It also trounces the average hedge fund return of -7%. Additionally, this reveals that it sold its $1 billion stake in Warren Buffett’s Berkshire Hathaway. The fund first invested in Berkshire less than a year ago and only weeks took a larger stake in the conglomerate.
Completely exiting the Berkshire position surprised many on Wall Street, as Ackman has long admired Buffett as a mentor. He recently said that Buffett had built Berkshire “to withstand a global economic shock like this one.”
It appears that Ackman, like many, may have felt frustrated by the lack of activity from Berkshire during the recent market downswing. Berkshire’s cash balance has ballooned to $137 billion. Many, including Ackman, had likely expected a portion of that cash to be used to scoop up bargains during the late-February selloff. The said selloff took markets down nearly 30%.
Instead, Berkshire stood pat, and that appears to have been enough for Ackman to pull the plug on his investment. While discussing the exit, Ackman said that due to Pershing’s smaller size compared to Berkshire, “we can be much more nimble… and so our view was generally we should take advantage of that nimbleness, preserve some extra liquidity in the event that prices get more attractive again.”
Pershing Square’s success over the last two years had thrust Ackman back into the spotlight. This, perhaps, turned the chapter on a period where he became more famous for his misses than his home runs.
He was invested in Valeant Pharmaceuticals as it collapsed. He also famously squabbled on live TV with fellow billionaire Carl Icahn over Herbalife. Then, he gave a nearly 3-hour-long presentation explaining why he thought the company runs as a pyramid scheme. He finally exited his $1 billion short position at a loss.
Ackman’s current hot streak started last year, when Pershing Square returned 58.1%. This is its best annual return since the hedge fund was founded in 2004. After years of letting others make the firm’s investment decisions, Ackman took back the reins in 2018 with a back-to-basics strategy he learned from Buffett.
He returned the fund to a strategy that invests in simple, predictable, cash flow positive companies. He said, “It’s very hard to lose money by buying great businesses if you pay a fair price. For a while there, we forgot that our main job was to make money, so we woke up, and now we’re back in the money making business.”
Making money is exactly what Ackman did earlier this year. He did so with “the single best trade of all-time,” as what many calls it. He correctly predicted that the coronavirus would wreak havoc on our economy. Because of this, Ackman made a $27 million bet that netted his firm a $2.6 billion profit in less than two months as the markets crashed.
Now, his war chest is full again. It appears that Ackman is ready to buy should asset prices come down again.
Battle for 3000: Bulls and Bears Ready for “Dogfight”
After climbing 33% since the late-March lows, the S&P 500 index closed at 2955 on Friday, putting the psychologically important 3000 level within reach.
In addition to the psychological importance of the 3000 level, that also happens to be where a key long-term technical indicator sits that is widely used to determine if we are in a bull or bear market.
The two most commonly used indicators are the 50-day and 200-day moving average. The 50-day is used by investors as a gauge of the short-term market trend, while the 200-day moving average indicates the long-term market trend.
“The fact that the S&P 500 is coming off a 35% rally and that this 200-day moving average lines up with a nice even 3,000 number seemingly makes this area especially important,” said Renaissance Macro Research analyst Kevin Dempter in a note on Friday. “A breakout is not likely to come easily and we expect a dogfight here around the 200-day.”
For 21-straight trading sessions, the S&P 500 index has bounced between the 50-day and 200-day moving averages. Jason Goepfert, head of SentimenTrader and founder of independent investment research firm Sundial Capital Research, stocks are “trapped between time frames.”
While bulls anticipate the S&P breaking above 3000 – and simultaneously the 200-day moving average – will signify a new bull market and push stocks to record highs, history indicates that may not be the case.
Dempter says that since 1928, there have been 29 instances where the market traded between the 50-day and 200-day moving average for at least 20 days. In 21 of those 29 instances, the S&P 500 ended up falling below the 50-day average, while only eight ended with a push above the 200-day, he noted, making for a roughly 72% probability the index will break down.
Mark Arbeter, president of Arbeter Investments, said in a note to clients last week that as we approach the key 200-day indicator, “One would think that after a big correction or bear market, and then a retaking of this key average, the bulls would go wild, the bears would capitulate, and the stock market would go into outer space.”
He points back to previous times the S&P tried to climb above the 200-day, and says it won’t be easy.
“When the S&P first cleared the 200-day in June 2009 as we were coming out of that major bear market and the financial crises, the index stalled and then pulled back about 7%, riding on the top of the declining 200-day for about a month. The index retook the 200-day in June 2010, after a swift decline, paused, and then fell to new corrective lows.
The 200-day was overtaken in August 2010, and rolled over again. After the major correction in 2011, the “500” rose back above the 200-day for 2 days and then fell 9.8%. We saw similar price action in 2015 and 2016 as the late rally over the 200-day in October 2015 failed miserably.”
Fed Chair Warns Of ‘Prolonged Recession’
The Dow Jones Industrial Average fell 516 points yesterday to close 2.17% lower. This came after Federal Reserve Chair Jerome Powell warned of a “prolonged recession” as the country battles the coronavirus pandemic.
The S&P 500 fell 1.77% and the Nasdaq slipped 1.56% as banks, airlines and cruise lines took the brunt of the selloff, with Bank of America slipping 4.57% and Citigroup dropping 4.13%. Wells Fargo fell 6.28% and JPMorgan Chase lost 3.45%.
Carnival and Norwegian Cruise Line fell 7% and Royal Caribbean slipped 4.98%. American Airlines fell 5.6% while Delta Air Lines plunged 7.7% and United Airlines dropped 9.01%.
Recession and Recovery
Speaking at the Peterson Institute for International Economics, Powell said, ”what comes though is there is a growing sense I think that the recovery may come more slowly than we would like. The path ahead is both highly uncertain and subject to significant downside risks.”
He added “The passage of time can turn liquidity problems into solvency problems,” and said that sending more “fiscal support” to families and businesses “could be costly but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.”
Powell did say that he and the rest of the Fed policymakers were against turning to negative interest rates in an effort to boost the economy. Many expected this move to happen later this fall, and even President Trump tweeted about them being a “gift.”
“It’s an unsettled area. I know that there are fans of the policy, but for now, it’s not something we’re considering,” Powell said yesterday. “We think we have a good toolkit, and that’s the one we’ll be using,” he then added.
He also said, “The committee’s view on negative rates really has not changed. This is not something we’re looking at. The evidence on negative rates is mixed.”
A Challenging Job
Powell said the economic uncertainty and the potential of a long recession due to the pandemic makes an already challenging job even more so.
“Economic forecasts are uncertain in the best of times, and today the virus raises a new set of questions. How quickly and sustainably will it be brought under control? Can new outbreaks be avoided as social-distancing measures lapse?”
Powell’s questions come after Dr. Anthony Fauci testified in front of the Senate Health, Education, Labor and Pensions Committee. Fauci also warned against opening up the economy too quickly.
“My concern that if some areas — cities, states or what have you — jump over those various checkpoints and prematurely open up, without having the capability of being able to respond effectively and efficiently, my concern is we will start to see little spikes that might turn into outbreaks.”
He later added, “There is a real risk that you will trigger an outbreak that you may not be able to control, which in fact, paradoxically, will set you back, not only leading to some suffering and death that could be avoided but could even set you back on the road to try to get economic recovery.”
“Everyone’s scared and everyone’s shell shocked,” said Kent Engelke, chief economic strategist at Capitol Securities Management. He also mentioned that Powell and Fauci “didn’t say anything new, they just validated the fears we have.”
Investing9 months ago
How To Invest In Drones
News6 years ago
The Federal Reserve Is A Ticking Time Bomb
News6 years ago
How to Invest in Graphene
News6 years ago
How To Invest Money in Oil and Gas Today
Business10 months ago
Why is Small Business in America Dying?
Dividend Stocks9 months ago
Mcdonalds the Worst Slump in a Decade
News6 years ago
3 Reasons to Invest in the Russian Stock Market Right Now
Commodities9 months ago
Latest Update On Oil – Expected to Settle Between $45 and…