PETER COOPER: Welcome to the Real Vision "Daily Briefing." It's Tuesday, May 5. I'm Peter Cooper, and we have Real Vision's Ash Bennington and Tony Greer standing by to give you their macro analysis. But before we go to them, let's go over the latest in market news.
April was a month of extraordinary volatility. And at the end of it, US markets had gains unlike anything we've seen in decades. The NASDAQ was up 15% by month's end. And the S&P 500, almost 13%. Many of the largest indexes have rebounded over 30% off of their 2020 lows.
Despite all of this, consumer discretionary is bracing for a big hit soon. Let's look at some of the highlights that help fill in the picture. In a matter of weeks, American consumers had drastically changed their spending patterns. A handful of industries that have been booming our groceries, deliveries, and takeout, and some forms of entertainment-- such as streaming.
However, most others, as we expect, are down. Interestingly enough though, overall spending for health has also suffered a drop. This is reflected in some of the most recent coverage in retail and autos. On Monday, J.Crew announced that they had filed for Chapter 11 bankruptcy protection.
The longevity of the privately owned company was already on shaky ground before the pandemic. Not only were they late to the party in transitioning from more brick and mortar operations to a heavier emphasis in e-commerce, J.Crew is no longer keeping up with the current consumer taste.
J.Crew is also in uncertain position due to the fact that it was highly leveraged. The company's debt burden amounts to $1.7 billion, with some of those debts maturing next year. All of these factors have caused the company to crumble under this extreme pressure. And coronavirus may prove to be the catalyst for other retailers downfalls, like JC Penney, Neiman Marcus, Sears, and Brooks Brothers.
However, retail isn't the only industry facing bankruptcies, as auto companies like Hertz are also currently at a brink of financial ruin. Hertz is currently down around 15% at the time of this filming. And overall, Hertz global holdings stock have declined around 85% from February 21. In March, Hertz began laying off workers in order to hold on to as much cash as they could to keep the business afloat.
However, on April 29, Hertz shared that they had missed substantial payments on their leases for their rental cars. Their balance sheet was already weaker going into the pandemic. But their aggressive cost reductions still weren't enough to meet their ongoing operating expenses.
Creditors had granted Hertz an extension to May 4 to propose a solution on how to deal with the situation. But the company has had difficulty securing any funding. Hertz was almost ready to file for Chapter 11 bankruptcy protection today, but was given another extension to May 22 to develop a financial strategy and structure that better reflects the economic impact of the COVID-19 global pandemic, according to Hertz. This provides them a little over two weeks more to prevent bankruptcy.
The reality that many companies going bankrupt is becoming more and more clear in recent days, making people question what the limits of the fed's policies will be to rescue these companies from going under. I'll turn it over to Ash and Tony now. Ash?
ASH BENNINGTON: Thanks, Peter. Interesting stories about bankruptcy and forbearance about J.Crew and Hertz is something we're going to be looking at in more detail in the future. It's Tuesday, May 5, cinco de Mayo, 2020, just after market close in New York. I'm Ash Bennington. And I'm joined by Tony Greer, Editor of the Morning Navigator. Welcome, Tony.
TONY GREER: Ash, how you doing, man?
ASH BENNINGTON: Doing great, man. How are you?
TONY GREER: Great. Great to be here again.
ASH BENNINGTON: We're glad to have you. This is a perfect day to have here because there's some mixed signals in markets, some good news, some bad news. Tell us, what are you looking at?
TONY GREER: I'm sticking with the same views, Ash. The market's trading on optic sentiment and technicals. If you ask me, we're in a high vol environment. When you come in over the weekend and you've got, like you said, bankruptcy and J.Crew-- you've got Warren Buffett sold airline news out over the weekend and doesn't see a good future for them.
The temptation is really to sell in May and go away. So we saw a heavy opening yesterday. Stocks recovered. Then we saw the oil market get on a run and improve optics quite a bit with the big, large magnitude rally we saw today.
ASH BENNINGTON: There was so much there, Tony. I was joking yesterday, sell in May and go away. I don't think anybody's going away this year.
TONY GREER: No, not in 2020.
ASH BENNINGTON: Yeah, we're all stuck behind our computers going on virtual vacations I guess. Get you a background picture of the beach. That's about as good as it's going to get. What did you think, Tony, yesterday on the Warren Buffett news? What was your reaction to that?
TONY GREER: It's amazing that a guy like him didn't see opportunity in such a steep crash like this, and had a negative attitude about the markets. But I'll be totally honest with you, I phase out how much I pay attention to him. I feel like he's being put up there quite a bit to manufacture sentiment or manufacture story quite a bit.
So you take everything that he says and does with a grain of salt. Warren Buffett is going to be fine. I don't know why everybody has to pay so much attention to his every move.
So we'll see what happens to the airlines now. That was part of the negative sentiment that weighed into the tape yesterday. And things came back a little bit today. I didn't see how the airlines closed today. But it's just going to be one of the uphill climbs that the market has to get over.
ASH BENNINGTON: Yeah, I sometimes think they pay attention to-- at the level that they do because it's a ratings issue. Warren Buffett's [AUDIO OUT]. But obviously a brilliant investor and decades of an unparalleled record. But I think some of that is just driven by the fact that when you put his face on screen and title the Oracle of Omaha, you get people to tune in.
TONY GREER: He's willing to hear what Babe Ruth thinks.
ASH BENNINGTON: Yeah, exactly. So let's talk more about the technicals. What are you thinking about in terms of price action right now?
TONY GREER: We continue to demonstrate the ability to have red to green days for starters, which is a positive. We continue to make higher lows, which is a positive. The market continues to be in this environment where we're getting the horrible, negative news and negative earnings, negative economic news, and negative earnings due to the shutdown.
And the market is just still in the process of retracing its way higher. We've got a few explosive dynamics going on in the oil market that match up with the restart of the economy that we're talking about. So price action is OK to me.
When I see that the drivers on the day, on what could have been a sleepy Monday, are gold stocks and energy stocks that are driving the S&P, that's the animal spirit print for the day for me. And so that's kind of encouraging for the tape. I'll be totally honest with you. And then you'll have other days that tech takes over. So to me, this is a restart rotation that might net net wind up a little bit higher on the upside.
ASH BENNINGTON: Let's take a look at those oil prices. So WTI crude changed 20% positive. That's up four points to close at 24.55. Brent up 14.4%, up four points roughly-- 3.91-- and closing at 31.11. I saw a story on "Bloomberg" about potential for the shale industry to be getting restarted. This was a story that we were writing the obituary for the entire American industry, it seems like, two weeks ago. And now there's talk at the $30 level about there being some demand.
TONY GREER: It's quite interesting. The last thing I read was about Exxon and Chevron shutting their permian basin wells down-- so single-digit numbers. But yeah maybe the journalists are getting creative.
ASH BENNINGTON: Yeah I know. There's just a whipsawing effect on the news cycle, right? It's like a manic depression. You turn on the channel at one minute, and you hear a story like-- one that hit me was that they're talking about potentially dismantling the Coronavirus Task Force-- with Mike Pence talking about moving it out of the White House and into FEMA. That's, in theory, a sign of normalization.
Then we had Bill de Blasio out today saying it was not such a great day in New York City-- the coronavirus cases are rising. So it's this weird effect. And what I really like about you, Tony, is you're able to cut through that just by looking at the tape, right-- getting a real sense of what's happening in prices, where the demand is, and where the prints are taking place. So to pick up on that, what are some of the other things that you're looking at?
TONY GREER: At 40 vol, Ash, it's very difficult to hide what you're doing, because there are portfolio managers out there that want to get certain stocks on the tape that are cheap on long term time horizons at the moment. And so price action is really just telling a story of what everybody is trying to accomplish. And when I look up at the end of the day and study where each sector wound up, it kind of matches where we rotated from two weeks ago, we were trading in that longer locked down than expected. And we saw a couple of heavier days on the tape. Then we turned into trading for the reopening rotation.
And volatility is still hanging in there. Excessively exuberant openings wound up getting sold. Underpriced markets gapped lower. Openings wind up getting bought. And that's what happens in high volatility. Everything that's going on is really transparent on the tape. And it's one of the great things about this market right now. There's certain stocks that are breaking out technically and in the last day of weakness have just gotten a chance to test support and then rally again. So to me, that's as telegraphic as a market could possibly be, and one that gives you a lot of opportunities to upsize your bets.
ASH BENNINGTON: Interesting. So you mentioned a couple of things here. First, sectors, and then second, individual stocks-- let's take a look. What are some of the things in those two categories that are jumping out at you most prominently right now?
TONY GREER: Yeah, well, let's just start in energy-- the energy stocks that I've gotten long in my newsletter. On a technical basis alone, they've taken as much negative news as they can. And that's one of the sectors that's pricing in a restart now. Everybody was literally in shock from that episode in May futures where they went negative. They priced up negative price options on the board at Chicago Mercantile Exchange, and then the price never looked back again.
Everybody rolled out beyond June into July and August, and now, as you see, when somebody comes in to buy Junes, there are none. So the price of June goes up 20%, and that affects the optics and gets everything rolling. So that's one sector that really buys into this restart story. Then you've got homebuilders have been acting great in the last several days. That rhymes with the restart. As soon as guys can get out banging nails again, I would imagine that that sector is one of the first to explode closest back to full capacity, because it was operating on pretty strong terms before the virus broke out.
And now we've got even lower rates. So I also think that there might be a rush out of the cities into the suburbs. So maybe that affects the builders even better in the long term. So there are a couple of positive aspects going on right now. They're very much part of a retracement rally. But when you see the industrial names and manufacturing names that have gotten bludgeoned through this shutdown, blatantly just by turning their engines off, starting to come back to life, we finally had one day in the last several months where refineries had multi-sigma moves to the upside-- both Phillips 66, Marathon Petroleum, Valero had strong moves higher the other day. That's a blatant restart story. They've only been operating at 65% capacity. And so now that's probably going to go higher as we start burning gas.
And you're seeing tech come to life, right? There's going to be more testing. There's going to be a bigger biosecurity level on top of everything in the world. And that's showing itself in biotech stocks leading the way in the last couple of days. So the tape is pretty transparent in terms of the sectors that are performing. Lastly, just to touch on it once again, the FAANG members-- the big cap stocks that are likely going to weather this with no problems on their credit-- excuse me, no blemishes on their credit, and enough cash in the bank to weather any storm, they're performing as well. So the tape is, like I said, at 40 vol, when things are moving, the tape is really telegraphing what's going on quite clearly.
ASH BENNINGTON: Yeah, I was thinking about the comment that you made about getting guys banging nails again. One of the things that's interesting about the construction sector is that there's the potential for a snapback if demand comes back. It gets pulled forward because people didn't buy houses. All that construction came offline. Other industries are very different from that. For example, you're not going to go and make up for the six steak dinners that you lost-- that you didn't eat because the restaurants were closed. But things like construction, you could see more of a snapback in demand because you have the fact that it was just offline and it's pulled forward.
TONY GREER: That's it. So in line with seeing those sectors come back to life a little bit, we'll see what happens. But the S&P is getting toward a much more serious resistance level more broadly speaking. So that'll be a more important test. This has been a one-way train off of the bottom, which was a one-way train off of the top, right-- February, March, April-- three of literally the most volatile months I've ever seen in my life in the equity market. So there's going to be a lot more volatility left on the backside of this as the market tries to digest what's going on right now.
ASH BENNINGTON: Yeah-- S&P closing top on February 19 at 3,386. You were talking about resistance levels. Tell us a little bit about what your view is there.
TONY GREER: Yeah. The S&P is starting to retrace back up to, I guess, the 100 and 200-day moving average. I don't know exactly where they are. They come in between 2,950 and 3,000-- up above. The market tends to have a really, really good memory. And if I use my memory, I can remember last fall playing the breakout beyond S&P 3,030. That was like a double top that we saw. And then I guess in August, September when they turned on the repo window jets and basically posted as much liquidity at the repo window as any levered fund would ever need, the market started taking off.
And it was when we broke through 3,030 that the market went straight to 3,400 and straight line-- literally a 90-degree angle-- and then we ran into this black swan. So 3,030 is going to be another level for me on the upside. That's my ultimate top. That's where by that level I'm out of all of my length that I've accumulated in the dip. I'm probably looking to turn the boat short. But like I said, at 40 vol, it's a little bit too early to tell on that decision. Let's take one step at a time, see if we get there.
ASH BENNINGTON: And what about to the downside? Do you have any particular technical levels that you're looking for as potential reversal points?
TONY GREER: Yeah. We've had a couple of lows just above 2,700 I guess earlier on Monday. And I think that's probably-- 2,700, that's double bottom. On the intraday charts, that's short term support. And once you fall below that level and then the 50-day moving average, now you're kind of in a free-fall zone for the S&P. So you probably get somewhere-- support then is probably knocked down to somewhere below 2,600, 2,650 like that. So there's opportunity for plenty of S&P volatility for the rest of this year, that's for sure.
ASH BENNINGTON: Tony, we were talking earlier about something that you wrote in the morning navigator about the last FOMC meeting and some insights that you took away from that. What's your thinking about that right now?
TONY GREER: Yeah, there was some powerful verbiage in the last FOMC meeting, right? I have the quote over here, because I pulled this one out, because I had to read it. So in his prepared comments, this one jumped out at me from Jerome Powell where he said many of the programs we are undertaking to support that flow of credit rely on emergency lending powers. So he was talking about those emergency lending facilities that they've created. Then, we will continue to use these powers forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery.
Now that, to me, is just a signal that says, you can try to bet against me if you want, but we're pretty adamant about the task at hand here. So that's the kind of messaging to me that when the market looks a little bit heavy and things look like they're going to curl over, that we don't really have a waterfall ahead. Because sentiment is already bearish, and the Federal Reserve is going to continue to expand its balance sheet, right?
So if we start getting some more bad news about the recovery, about the loan programs, about shortages of capital in the markets, about any tightness at the repo window, what is the Federal Reserve going to do? They're going to come back forcefully, actively, and proactively with more accommodation. And what is the tape going to do when it sees that? Likely stop going down. So we're going to have these opposing forces now where it's going to be the Federal Reserve and their word and their credibility up against the fallout data from the shutdown. And like we're leading into this Friday, we're going to get an unemployment number this Friday that's going to make everybody choking at breakfast. So we'll see what the market looks like on the other side of that.
I'm looking forward to that data point really tremendously, because say we get a number worse than expected and the bond market doesn't make a new high, maybe that's a signal that the bond market has already reached its peak and yields can start going higher and we can start getting into a little bit more of a market normalization rotation rather than a restart rotation. That's my next sort of phase that I'm looking for.
ASH BENNINGTON: Right. The other interesting thing about that quote is the last