US stocks are turning negative as investors start to abandon tech-heavy positions before the technology giants start to report.  Alphabet posts earnings after the close, Facebook and Microsoft report tomorrow, and Amazon and Apple deliver results on Thursday.  Much of the earlier rally stemmed from a steady flow of positive news on the virus front.  Reopening economies is the theme of the week and new COVID-19 cases in the US are slowing down considerably (yesterday was slowest pace in April). 

Global equities are at a key moment right now.  Last week was the beginning of the end of the V-shaped recovery for many investors, and today’s initial surge took out that high (likely stopping out many short bets).  Too many questions marks remain with the outlook for global economy and if the Treasury market is telling us something, we could see risk aversion dominate the rest of the week. 

The risk-off move accelerated after the Cares 2 relief bill appears to not be ready. The House will not be coming in to DC net week as COVID-19 cases are still escalating in the nation’s capital. Any delays with additional coronavirus stimulus will continue to sink stocks.

Treasury yields are lower across the board, with the 10-year trading comfortably in the middle of its April trading range.  The dollar is paring losses following the reversal in equities and Treasury markets.   


The upcoming Fed meaning will shine some light to the plethora of stimulus measures unveiled over the past couple months.  The devil is in the details and this meeting will draw scrutiny to the effectiveness and the duration of these policy measures, and whether the Fed can endure a ballooning balance sheet.

With uncertainty remaining on how long coronavirus pandemic economic pain will last, the Fed will likely deliver minimal forward guidance on how long rates will stay at near zero levels.  This Fed meeting will likely see no new initiatives announced, pretty much the only thing they are not buying are stocks. 

The Fed’s past three intra-policy meetings have delivered emergency measures that pretty much told investors that “the Fed’s got their back.”  The Fed has eased concerns of dislocations in the Treasury, credit and ETF markets.  Expectations are high for the Fed to keep the stimulus coming as the unemployment seems poised to surge to ~20% and no one has a handle on how bad the damage will be in the second quarter.  The base case scenario is that the Fed will keep ballooning the balance towards $10 trillion, with another $3.4 trillion expected over the next couple months. 


Oil erased an earlier loss after ETFs appear to have finished rolling contracts out of the June WTI crude contract.  The USO oil fund loss $1.19 billion in March following the collapse in oil prices which was accompanied by mounting hedge fund selling. 

Oil prices extended their gains after Turkish press reported a bomb detonated on an oil tanker in the northern Syrian city of Afrin killed at least 10 people. 

WTI crude prices are tentatively respecting the $10.00 a barrel level, but that might last as oversupply conditions will have tank tops reached in the coming weeks.  Oil trade will remain volatile, but any major relief rallies will likely be heavily sold into until the entire energy space starts delivering deeper production cuts. 


Gold prices got punished after a wrath of corporate updates saw the majority of the companies that reported traded in the green.  Despite several companies removing their 2020 guidance (UPS, 3M, and Pepsi) and others saying that more pain is coming (Caterpillar, 3M, and Merck), most companies are managing to shore up their balance sheets and on the global front they are signaling optimism is growing that China’s recovery is sticking. 

Gold prices are down for a third consecutive day, but still very much in a consolidation pattern that still could support a thrust higher.  Gold’s bullish outlook mainly revolves around high expectations that the Fed will deliver another $3 trillion in stimulus, while the US government is good for $2 trillion more over the next couple months. 

By Ed Moya