Weekly Closing Numbers: COST Impressive

Market Direction: BEARISH alert issued 2/27/2020

What is the current stock market direction? 

Vote BULLISH (Up) or BEARISH (Down) in the upper right side bar, the current stock market direction weekly closing numbers. Leave a comment. Now for the news…

The economy



Nothing has changed even though the stock market rally was positive this week. The current alert is still bearish. Put your seat belt on and be ready for a ride. We will continue to monitor our models and let our followers know as market conditions change.

The S&P 500 is up 2.4% for the week. That's the good news. The bad news is that it will soon be negative for the week, as the futures market is pointing to a sharply lower open.

Currently, the S&P futures are down 89 points and are trading 3.1% below fair value. The Nasdaq 100 futures are down 279 points and are trading 3.5% below fair value. The Dow Jones Industrial Average futures are down 710 points and are trading 2.9% below fair value.

That price action is startling in its own right, but the price action in the Treasury market is downright stunning. The 10-yr note yield hit 0.70% overnight and is currently down 20 basis points at 0.73%.

The move in Treasuries has been precipitated by flight-safety flows that have been fueled by economic growth concerns stemming from the spread of the coronavirus. It has also been stoked by momentum, interest rate differentials, and policy stimulus expectations, the latter of which have also been nothing short of stunning.

The CME FedWatch Tool is showing a 100% probability of another 50 basis points cut at the March 17-18 FOMC meeting and a 64% probability of a 75 basis points cut.

Those expectations capture the view that the coronavirus isn't "just another flu." It might have similar characteristics, but when was the last time entire cities were quarantined, professional sporting events were canceled, travel restrictions were imposed, orchestrated efforts to force employees to work from home, states of emergency were declared, U.S. schools were closed, and the Federal Reserve ushered in an emergency 50 basis points rate cut because of the flu?

Coronavirus is quite different from the flu because the reaction to it has been universally different -- and that reaction is what gets lost in the debate as to whether the coronavirus is "just another flu." Rightly or wrongly, the coronavirus is creating an economic disruption in a manner no normal flu has in our modern age and that is the important distinction for the capital markets and policymakers.

It's another reason why the strong employment report for February has been glossed over for the most part by the market. At any other time, the Treasury market would be selling off on today's report, and, arguably, the futures market would be moving sharply higher -- but this isn't any other time.

The key takeaway from the report isn't what was in the report, it was the lackluster response to it, which is a function of expecting employment reports in coming months not to look as good because of the coronavirus impact.

The notable headlines from the Employment Situation Report are as follows:

• February nonfarm payrolls increased by 273,000 (Briefing.com consensus 170,000). Job gains have averaged 243,000 over the last three months.
  • January nonfarm payrolls revised to 273,000 from 225,000
  • December nonfarm payrolls revised to 184,000 from 147,000
• February private sector payrolls increased by 228,000 (Briefing.com consensus 160,000)
  • January private sector payrolls revised to 222,000 from 206,000
  • December private sector payrolls revised to 164,000 from 142,000
• February unemployment rate was 3.5% (Briefing.com consensus 3.6%), versus 3.6% in January
  • Persons unemployed for 27 weeks or more accounted for 19.2% of the unemployed versus 19.9% in January
  • The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.0%, versus 6.9% in January
• February average hourly earnings were up 0.3% (Briefing.com consensus +0.3%) after increasing 0.2% in January
  • Over the last 12 months, average hourly earnings have risen 3.0%, versus 3.1% for the 12 months ending in January
• The average workweek in February was 34.4 hours (Briefing.com consensus 34.3), versus 34.3 hours in January
  • Manufacturing workweek increased 0.2 hours to 40.7 hours
  • Factory overtime increased 0.1 hour to 3.2 hours
• The labor force participation rate was unchanged at 63.4%

Separately, the trade deficit narrowed to $45.3 billion (Briefing.com consensus -$46.0 billion) in January from an upwardly revised -$48.6 billion ( from -$48.9 bln) in December. This report matters even less at the moment to the market than the February employment report, because it is for the month of January.

In other developments, Starbucks (SBUX) lowered its revenue expectations for its China operations; Costco (COST) put up some impressive earnings and sales results; oil prices are down 4.5% to $43.83 per barrel as Russia is reportedly balking at OPEC's plan to cut output by an additional 1.5 mln barrels per day; and JPMorgan Chase (JPM) CEO Jamie Dimon had an unexpected heart surgery and is said to be recovering well.

There's obviously a lot to digest this morning, but the price action is the tell -- and it isn't telling good things right now insomuch as it relates to the outlook.

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The market direction weekly closing numbers for the indexes this week compared to the initial BEARISH recommendation closing numbers:

Stock Market Closing Numbers
compared to Recommendation Numbers
	2/27/2020	3/6/2020	Difference
Dow Jones	25,766.64	25,864.78	98.14
Nasdaq	8,566.48	8,575.62	9.14
S&P 500	2,978.76	2,972.37	6.39

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