Despite a rally late in the day on Friday, risk assets remain under intense pressure. Futures in the US quickly traded limit down on Sunday night, where they remain as of this writing. Despite oversold conditions for the main market ETFs that we track, we prefer to wait for signs of a stabilization in the markets before adding equity exposure on the long side of the portfolio. As Marc Chaikin wrote yesterday, “risk management remains more important than ferreting out money making opportunities with so much uncertainty about the ultimate scope of this nascent pandemic.”
Market Commentary / Looking Ahead
US equities were higher in Friday trading, ending near the best levels of the session on a big rally in the final minutes of trading. Despite the rally into close, the S&P 500 still finished down 8.8% on the week. All sectors were higher on the day with Financials & Technology leading. Utilities, Consumer Discretionary and Materials were relative underperformers. Treasuries were weaker with the curve steepening. The dollar was up on the major crosses. Gold settled down 4.6%. WTI crude ended up 0.7%, but saw its worst week since December 2008.
Given the fear and uncertainty in the market, it is not unreasonable to assume that the lows from December 2018 near $230 are in play for the SPY. Beyond that, there is potential for the fund to find support at $210 which is in line with the breakout level from the 2015 /2016 consolidation. It is possible that the market could stage some sharp rallies, as has been the case historically in bear markets, but it is likely that those rallies will fade and the initial lows will be tested.
S&P futures are trading limit down as they have been since last night. SPY is off by ~9%. Asian markets were lower overnight. European markets are under pressure. Treasuries are rallying with the curve steepening. The dollar is weaker on the major crosses. Gold is up 0.2%. WTI crude down 5.4%.