Mike’s Morning Brief – March 4, 2020

What’s going on in the world…

Market opens higher, trying to lift up after yesterday’s drubbing. The strength this morning could be called a Biden Bounce, as the former Vice President had a big night on Super Tuesday. Biden won 10 of the 14 states in play last night, including delegate heavy Texas, shocking the political world. Bernie Sanders won California, the biggest prize, but his victory was by a much smaller margin than expected. Health Care stocks are leading in today’s Biden Bounce as Bernie’s Medicare for all plan is looking less likely. Bloomberg and Warren did not fare well, and their campaigns have a reality check to face this morning. It is clearly a two candidate race. The coronavirus is still front and center of concern. The Fed made a surprise interest rate cut yesterday, by 50bps, to help combat the economic toll. The Market did not like it. The 10-Year Treasury yield fell below 1% for the first time ever. The Bond Market continues to suggest more problems ahead. The Stock Market is trying to deal with the damage. Italy is now a focal point for the coronavirus. Italy closed all schools and universities to combat the growing coronavirus outbreak. China reported another drop in daily coronavirus cases after recording the fewest number of infections since 20 Jan as the focus remains on the outbreak in other countries. More deaths reported in Washington state, taking US fatalities to nine. WHO said the Covid-19 death rate far outpaces flu, but the virus can be contained. Economic data continues to highlight impact, with a sharp drop in China services PMI to record low. The G7 pledged coordinated support to combat the crisis, but there really isn’t much that they can do. Expect this whipsaw price action to continue. We have been taking our lead from the Bond Market all along, and it is telling us there is still more trouble ahead. Financials are getting clobbered in response to the Fed action. So, for the time being, stocks are higher. Bonds are also higher, with rates falling further. Gold keeps rising, as a safe-haven. The Dollar is higher. Oil is higher. The VIX is lower, but still elevated at 33. This volatility is not over, and will likely last into Spring. The Stock Market is trying to find a floor, and we are not convinced that last week’s lows are it. We are staying defensive.

Have a great morning,

Mike Frazier