Should We Thank The Fed For The Market Rally?

What a rally we had yesterday, and perhaps we can say this is a Fed led rally.  The Fed left rates unchanged at 0.0-0.25%, while reaffirming to keep rates steady until the economy stabilizes and "is on track" towards gaining full employment and price stability. The Fed committed to using its full range of tools to help the economy facing considerable risk from the coronavirus pandemic. "The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," said the Fed in its FOMC statement on Wednesday.

The Fed has purchased close to $2 trillion in mortgage related assets and Treasury’s and are adding nine additional lending programs to add $2m trillion more to the system.  The Fed balance sheet has climbed from $4.2 trillion in February to a record $6.6 trillion.  

The markets roared yesterday out of the gate and buying continued for the entire session. We have talked a lot about the breadth of the market and the new highs being created.    

The S&P 500 is on track for having the best month since October 1974.  Investors continued to rotate out of safe havens. Consumer Staples and Utilities were down on the day, while Energy was the best performing sector. WTI is now tracking close to $17 per barrel.  The appetite for FAANG helped propel Communications and Technology. The move out of them was short lived.

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A lot of names reported earnings last night and this morning. Once again, a common theme is companies are not giving guidance.

• Facebook FB): the company showed the naysayers as the company said ad revenue has stabilized after the March slide, with April flat year over year. The company beat on top line with revenues of $17.74 billion, up 17.6% year over year, and EPS of $1.71 was in line. The company is not giving revenue specific guidance. Stock indicating +7.5%.
• Tesla, with its cult like following is soaring again.  The company saw strong demand in the first two months of the quarter and beat on top and bottom line, revenues rose 31.8% to $5.99 billion year over year and EPS was $1.24.  The company refrained from giving guidance and Elon Musk, CEO, went on a shelter in place tirade, dropping the F bomb and calling for “liberate” and calling the orders "facist."
• Microsoft (MSFT): Covid had minimal impact on its Q3 revenue and the company actually saw increased cloud business.  MSFT  beat on the top and bottom line with revenues up 14.6% year over year to $35.02 billion and EPS of $1.40. MSFT will be giving guidance in its conference call.  The stock is up +2%.

Claims

Initial weekly jobless claims were 3.839 million compared to estimates for 3.5 million.  While extremely high, it is lower than the prior week’s 4.442 million.  The four-week moving average, typically a better gauge, is 5.033 million. Continuing claims are now up to 17.992 million.

The job’s picture is weighing on household income and spending.  Personal income for March was down 2% and consumer spending fell 7.5%, the worse decline on record since its inception in 1959.

Portfolio Approach

We made several bolding changes as well as raised Consumer Discretionary weighting and lowered Cash in our model portfolio. If you have questions, contact your account representative or email research@wstreet.com.

Today’s Session

The futures looked to be gaining on yesterday’s momentum but have lost steam, save for the Nasdaq.