The virus continues to spread within China as well as the world

Things you need to know:

Most Asian markets are closed – as the Lunar New Year Celebrations begin. China has now “locked down more than 28 million people as they deal with the ‘virus.’”

European markets all rallying on better than expected earnings/data

US futures pointing higher as well – PMI data due out at 9:45 am

Try the Drunken Spaghetti

Beijing, Shanghai, Macao, and Hong Kong all now reporting outbreaks. China has now locked down 13 cities and more than 28 million people just as the lunar new year celebrations begin. The WHO (World Health Org) has yet to classify this virus as a “global public health emergency.” Yes, it is an emergency in China but not a global emergency yet.

The markets remain unsure of how to assess the risk. Tuesday we were down, Wednesday up, Thursday we were confused, and today, stocks are looking to advance. Investors are focusing on earnings, corporate news and broad macro data, once again pushing the coronavirus to the back burner.

This morning in Europe, all of those market centers are up more than 1%! The Euro Stoxx 50, Europe’s leading blue chip index, which provides a “blue chip” representation of super sector leaders across the Eurozone is up 1.3%. That is its biggest gain in more than one month with most of the sectors in the green. Economic data in Europe this morning, while still a bit weak, is showing improvement. IHS Markit’s EZ flash composite PMI remained at 50.9, which is in expansionary territory but below the 51.2 estimate. The manufacturing component of that reading was 47.8 (contractionary) but was a marked improvement over last month’s 46.3 and the January expectation of 46.8. So that’s a bit of Ying/Yang. But, the future outlook for 2020 increased markedly from 59.4 to 61.2, the highest level in 16 months.  In Britain, January flash PMI came in at 52.4 vs. the expected 50.6, putting that well into expansionary mode. They saw both manufacturing and services sectors handily exceeding expectations. As is here in the US, earnings in Europe continue to be the driver. Ericsson, Virgin Money, and Carrefour all beating the number and surging as investors jump on board while Remy and Nokian Tyres fell victim to worse than expected revenues and forward guidance.

FTSE +1.57%, CAC 40 + 1.16%, DAX + 1.41%, EUROSTOXX +1.37%, SPAIN +1.08% and ITALY +1.38%.

Yesterday, the markets spent most of the day in negative territory as investors were once again focused on the spreading virus. But as morning turned to afternoon, the markets moved higher as we get ready for a very big earnings week (next week). The speculation is building about what we will see. Clearly investors/traders and analysts all agree: earnings should continue to beat the numbers allowing for the markets to move higher. Around the world, corporate earnings are beating the expectations and the recent “robust” macro data is validating analyst’s/strategist’s forecasts for a recovery in the global economy. By the end of the day, the Dow lost 26 pts, the S&P gained 4 pts, the Nasdaq added 19 pts, and the Russell advanced by less than 1 pt.

And while it all feels good, you can’t help but wonder how much of this advance is being driven by FOMO (Fear of Missing Out). How do you explain it? How do you explain why the algos just continue to buy, buy, buy. Well, FOMO makes some participants feel like that are missing the boat and that others are more successful. So they want in as well, paying no attention to real underlying fundamentals, causing the trader types to become unrealistic and overconfident. It is that segment of the market that gets whacked when we get an innocuous headline that sends the market lower. Because look, long term investors are just that: LONG TERM. They do not get drawn into a FOMO mentality because their plan is methodical, consistent, and measured. In fact, the long term investor becomes even more frustrated when the momo (momentum) guys just keep taking it up, and up, and up. While they might be frustrated, don’t forget, every time the market advances the long term investor benefits, as prices rise and portfolio values increase, so they are not that frustrated!

US futures are higher! The Dow is up 77 pts, the S&P is ahead by 9 pts, the Nasdaq is adding 34 pts, and the Russell is gaining 7 pts. While the virus news is important, the focus today and next week will be on earnings and economic data. Earnings today include: APD (beat), SYF (beat) & AXP. Economic data today is all about US PMI - IHS  Markit Manufacturing expected to be 52.4, while IHS Markit Services PMI is expected to be 53, both remain solidly in expansion mode. That is good, but you have to ask, hasn’t the market already discounted most of this expected good news? Well, let’s see, with European market solidly higher, we can expect US markets to follow suit, unless today earnings and eco data completely miss the targets, not likely. If US markets follow Europe’s 1+% moves higher then by the end of the day, the Dow, S&P and Russell will be up more than 3% this month and the Nasdaq will be up more than 5% this month. Oh boy, this is no time to fall asleep.

Oil is down 15 cents at $55.43, as the virus “casts a cloud over fuel demand.” Which flies in the face of the improving global macro data. Remember, analysts are trying to tell us that IF the virus spreads around the world even more. Then, economic growth will stall and demand for oil will decline. Like I said, the virus would have to turn into the bubonic plague to cause real demand to plummet. Period. 

Oil has now broken all three trend line supports. Yesterday, I pointed this out and said that “they might try to push it lower again just to see where the bodies lie.” That is what they are doing today. They want to try and test yesterday’s low of $54.77 to see if it holds. I think it will and I still think we are comfortably in the $55/$60 range.

Gold is down $6 at $1,565oz. Yesterday’s scare (think spreading virus) did cause a flight safety move as equities came under selling pressure for the bulk of the day yesterday. This morning with European stocks up and US futures up, gold is down. It still feels like we are in the $1550/$1600 range for now.

 

Drunken Spaghetti (Spaghetti Ubriachi)

Time for a drink – Don’t you think? 

So you ask – drunken spaghetti? How so? Well – you cook it in water and red wine – a nice Chianti or “vino di tavola” (table wine). No need to use an expensive red –  go out and buy a chianti. The trick is that you add equal parts of water and wine – bring to a boil and add the pasta – cook for 7 mins and then strain – reserving a mugful of water/wine. You then finish it off by sautéing in a pan with butter, garlic, pancetta and ½ cup more of the wine… read on…

You need – a nice chianti, garlic, butter, spaghetti (you can use fusilli, linguine, buccatini, cappellini but it should be a long pasta – not a penne or mostacioli, ravioli etc.), olive oil, chopped parsley, pancetta, red pepper flakes (optional) and plenty of fresh grated cheese.

Add equal parts water and red wine to pot and bring to a boil. Add salt. Add pasta. Cook until al dente – like 7 mins or so.

In the meantime, peel the garlic and slice it. – chop some pancetta. Place the butter and olive oil in a sauté pan large enough to fit the pasta and place it over low heat to slowly melt the butter. Now add the pancetta and cook just until almost crispy… now add in the chopped garlic. Sauté. (here is where you would add the red pepper flakes if you choose)

When the garlic gets toasty add the additional half cup of red wine and about quarter cup of pasta water… turn up the heat until the liquid simmers. Strain the pasta – reserving a mugful of water… toss the pasta into the sauté pan with the garlic & wine. Mix well, tossing and stirring over med-hi heat until the liquid is absorbed. Do not let it “dry out” you can always add a bit more of the water if it does. Taste. Good? Now add a handful of fresh grated parmigiana (or pecorino Romano) cheese – toss again and serve immediately in warmed bowls… be sure to have more cheese on the table...