Capital Wave Forecast: Get It While You Can

Shah Gilani|May 4, 2020

I’m going to let Janis Joplin tell you what to expect and what to do with equity markets this week and this month.

“Get it while you can.”

That title lyric was on Janis’ 1971 posthumous album Pearl, and it’s what investors need to remind themselves to do.

Because the dramatic bounce off the March lows has maybe a little more to go, at least for some stocks, before markets give up the ghost of depressions past and head back down to earth, maybe below, meaning towards the fiery place way under our feet.

But not all is lost, yet. Before the storm last week, which came Thursday and Friday, stocks were riding news that big tech earnings were hardly indicative of a depression on the horizon.

It was all good, for a while.

The benchmarks were up 3.6% and more over the first three days of the week, then the storm blew in. The S&P 500 lost 3.7% over the next two days. The Dow Jones Industrials gave back their gains and the Nasdaq Composite looked like it saw a ghost.

But as ugly as it felt and looked, for the week the S&P 500 only lost 0.2%, ditto for the Dow. And the Nasdaq Composite lost a mere 0.3%. Hardly a bloodbath by any measure.

Maybe the selloff that started Thursday was a goodbye to April, which was the best month for stocks since January 1987 and 2000 for the Nasdaq. The Dow jumped 11.08% in April, the S&P popped 12.68%, and the Nasdaq Composite rocketed 15.45% higher, that’s a good year never mind a month!

Maybe Friday’s trading was the sell in May and go away crowd doing their thing?

Whatever it looked like, it was more worrisome that the tiny drop benchmarks notched on the week.

When the mega-cap tech titans lose their luster the whole market better watch out. That’s what was most disturbing, to me, that the big boys could turn tail so quickly after their better than expected earnings took them higher, in a matter of two days, is a head-scratcher.

Granted, Amazon.com Inc. (NasdaqGS:AMZN) suffered from Jeff Bezos being called to the House to testify about ripping off product ideas from sellers on his platform. And some downbeat talk about expenses in Q2, and something about breaking even.

And Tesla Inc. (NasdaqGS:TSLA) suffered from Tweet-boy saying the stock was “too high.” What is that guy smoking? And where were the lawyers and board members who are supposed to approve his Tweets?

Apple Inc. (NasdaqGS:AAPL) isn’t going to sell as many phones, they kind of said that. And Facebook Inc. (NasdaqGS:FB), with its 3 billion users and Google with its nuclear-powered search engines, aren’t going to feed off ad spending in Q2 as they’d like, even if they both said April looked like it was stabilizing. There’s stabilizing and then there’s sales.

This week we’re getting another slew of earnings. That’s probably not good.

With the big-boys out of the way, at least most of them, the lesser companies, meaning the rest of the market, better have great earnings and great guidance (good luck with that) if the market’s going to have a decent week.

There’s more possible upside here, not only because volume on the down days, especially Friday last week, was so low, and benchmarks have shown remarkable strength and facility at breaking through resistance, more upside is possible. Probable isn’t the word I’m using.

But it’s going to have to come from good earnings, which might include short covering if earnings surprises shake those trees.

Otherwise, investors are going to be zeroed in on economic metrics this week.

Tomorrow we get ISM non-manufacturing, which is expected to fall to 35.7. I’ve got it breaking 30.

Wednesday, May 6 we’ve got ADP employment figures.

Thursday, we’ve got initial unemployment claims and continuing claims.

And on Friday, we’ve got the real-deal unemployment figures.

Markets are going to be on edge all week. If earnings fail to lift stocks this week, and economic metrics weigh on the benchmarks, taking them down to their next support levels, or below them, the happy-go-lucky bounce off the bottom might be in danger.

So, get it while you can.

Until then,

Shah