Equities, Bonds, Euro and Gold headed lower while Amazon duels with Shopify

The timely move by the Fed and the US government to combat one of the most scary, volatile and frustrating period ever in the history of the markets paid off as the markets rebounded sharply throughout the latter week of March and most of April.

The government and the health authorities are mustering a bit of courage to take some bold steps and this could be the real test for the economy and social well-being.

The most important thing is - will there be an increase in hospitalization rates? Secondly, if there is an uptick in demand in the economy, how will the country cope up with the supply chain disruptions? It is easy to turn demand on especially since the country has been in a lock down, but it won’t be easy to turn production back on. There are sequential and parallel processes to be followed in manufacturing, shipping, inventory building, order fulfillment, re-staffing, etc which can create a lag between demand and supply. Especially with political issues heating up with China, it is to be seen how this will all play out. This could be also a recipe for short-term inflation picking up on many essential items.

But the bigger issue is health related. After going through the trauma of unemployment, lost profits, lost sales, dead businesses, mental breakdowns, suicides, suspended marriages, careers on hold, etc and if we have a fall back that will destroy the psyche of the whole country.

As it is, we do not know how much of the marginal increase in deaths due to high blood pressure, diabetics, cancer treatments, heart attacks can be attributed to the lock down and not being able to get timely medical help.

It is exceedingly difficult to make sense of all that is ahead of us. Let’s turn to markets.

Equities

The internal wave structures and price action are indicating that a break below 2825 in the S&P 500 will confirm that the upside pressure is over, and we could be on our way for much lower levels.

If the supports hold, there is a chance we can make another high to 2910 - 2920 before the market turns down again.

Bonds

Bonds are starting to move down again and would look to be short. It is difficult to define a small stop. Would keep a stop higher than the high of last two weeks.

Euro

Euro should continue lower and the immediate target is 1.0727 but the bigger one is the low of Mar 23 at 1.0635.

Gold

We are starting to believe Gold must have seen a significant top but still want to give the benefit of doubt that there could be one more push higher before it turns down.

However, a move below 1660 would confirm that any upside pressure will be muted.

Before we wind up, let’s have a look at some of the important quarterly results that were released yesterday.

Disney Co (DIS)

Earnings plunged 63% to $0. 60 per share missing Wall Street’s expectations but revenue jumped up by 20.6% which was higher than expected. Media subscriptions jumped up by 4.5 million less than a month. No big surprises there. The surprise element was that they suspended their half yearly dividend saving $1.6 billion. Plans to reduce capital spending by $900 million for 2020 as well. Think the theme parks will be a drag on Disney but it should be a long-term hold.

Shopify (SHOP)

With Amazon not being able to handle - limiting or delaying orders - it played right into the hands of Shopify. They reported a rise of 210% in earnings and a 47% spike in revenue. Think this is one company that will challenge Amazon on some parts of their business. Wall Street ‘s expectations for a minus $0.18 per share turned out to be a profit of $0.19 per share. Stocks rallied more than 4.5%.

Be safe. Be small. Be home.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.