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This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.
China’s Reluctant Consumers
Weekly Summary, NDR
Ned Davis Research
May 29: China’s economy nearly ground to a halt in late January through February amid strictly enforced lockdowns due to the Covid-19 pandemic. But it has since registered a remarkable rebound, with some measures of economic activity—such as industrial production, home sales, and electricity consumption—above their year-ago levels as of April.
But the recovery has been lopsided, with noted weakness in the consumer and external sectors. This provides a guide of what to expect in other parts of the world as economies open up following the lockdowns.
[Trends in] retail sales confirm consumers’ lack of enthusiasm to get back to spending. Sales continue to slump on a year-to-year basis, falling a record 15.8% in March and down 7.5% in April.
Looking at data just from larger retail enterprises, demand for discretionary items such as apparel, jewelry, and household appliances has failed to recover.
Online retail-sales growth moved back up into positive territory in April, rising 1.7% from a year earlier. But this is far below the 16%-plus pace recorded throughout most of 2019. Leading the decline is demand for online services, which has been falling at over a 20% pace since February.
—Alejandra Grindal, Patrick Ayers
Handicapping the 2020 Election
Strategy Spotlight
RBC Capital Markets
May 29: In virtually all of our meetings recently, investors have continued to ask about our thoughts on the 2020 U.S. election. We view the election as a key risk for stocks this summer and into the fall. Expectations in the betting market as to whether President Trump will win again in November remain closely aligned with S&P 500 performance. The betting market now expects a close race for the White House and the Senate, a major shift from February, when expectations that Trump would win again and that the Republicans would keep the Senate ran high. We’ve also been telling investors to keep a close eye on Democratic candidate Joe Biden’s vice-president selection process. The buzz about Senator Elizabeth Warren is growing in political circles, something the betting market is only just now starting to wake up to.
—Lori Calvasina and team
‘Buy’ Signals for Stocks, Part I
June 2020 Newsletter
Sadoff Investment Management
May 29: Two more sets of trading patterns have confirmed the parade of many other bullish technical indicators. The Three Day Price Thrust Indicator (developed by Ned Davis Research) takes place when the S&P 500 rises 1.5% or more for one day, at least 1.15% for the next day, and 1.5% or more on the third day. This pattern signals solid upside momentum. It just recently signaled “buy.”
Another bullish trading pattern has led to superb results six and 12 months later. The breadth thrust indicator tracks the NYSE advancing and declining issues for five consecutive days. More specifically, a buy signal occurs when the total number of advancing stocks outpowers the declining issues by 2.5 times over five consecutive days.
Since 1950, the average S&P gain has been 5.0% three months later, 12.3% over six months, and 19.3% for one year. Very good results! The latest buy signal occurred on April 9, 2020. InvesTech Research uncovered this trading pattern. Caution: Money-losing three- and six-month results occurred in 1974, 1991, and 2011. The one-year results are superb.
—Bryan, Michael, and Ronald Sadoff
Post-Covid-19 Energy Demand
Equity Research: Integrated Oil & Gas
Wells Fargo Securities
May 28: We have been squarely in the camp that oil demand is a long way from reaching its peak demand. Coronavirus has not altered that view. If anything, coronavirus may actually work in favor of accelerating energy demand growth in coming years. In the near term, we all see the preference for personal driving over mass transit and suburban over central-business-district residences lifting vehicle miles traveled (and gasoline demand by proxy). Work from home certainly has its attractions and will work against demand growth, but it isn’t an option for a majority of the labor force. Other longer-term items might include a reversal in energy-efficiency gains. As an example, both commercial aircraft and office buildings will likely need to increase access to cleaner (i.e., less recycled) air, which implies greater filtration and temperature control—both of which would require more energy use.
—Roger D. Read, Lauren Hendrix
Copper Rally Could Have Legs
The Weekly Speculator
Marketfield Asset Management
May 28: A flare-up of tension between the U.S. and China meant that copper didn’t benefit from the pro-cyclical investment wave that hit markets this week. But the metal only lost points that had been gained the week before. Provided the metal can stay above its 50-day moving average at $5098.21 [per tonne], it can still mount a challenge to key resistance at the $5500 level. We don’t believe that the U.S.-China dispute need prove fatal to the rally, given that it will take place against a backdrop of fiscal largesse across all major economies that is likely to include considerable expenditure on infrastructure. We would also note that both the U.S. and Chinese housing markets appear to be rebounding strongly from the first-quarter collapse in activity, and that these are two of the most significant sources of demand for the metal.
—Michael Shaoul, Timothy Brackett
‘Buy’ Signals for Stocks, Part II
Market Perspective
SunTrust Advisory Services
May 27: The rebound in stocks continues to impress. Recent market gains have been aided by optimism surrounding the reopening of the economy and the potential for a vaccine.
On Tuesday, a price-based measure of buying pressure reached an important threshold: The percentage of stocks in the S&P 500 trading above their 50-day moving average price breached 90% for only the 16th time since 1990. Looking at prior periods where the 90% threshold was breached, the S&P 500 was higher one year later in 14 of 15 instances, with an average gain of 16%. We last saw this signal in February 2019.
What also stands out with the current signal is that the market went from extreme selling (less than 10% of stocks above their 50-day moving average) to extreme buying (90% or more of stocks above their 50-day moving average) in only a few months. This has occurred only six other times since 1990, always following important market bottoms. Each time, stocks were higher a year later with above-average gains.
We view the broadening of the rally beyond just a few market leaders as a positive longer-term omen. Similar readings in the past have tended to occur following important market bottoms. While this is only one factor, and we still expect periodic pullbacks, this indicator supports our overall equity bias.
—Keith Lerner
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