Momentum Monday – The Rally Has Paused

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The price leads the news. When stocks rise, the news says that the market is discounting a better future. When stocks fall, the news says that we are in the midst of a severe recession. Last week brought a little bit of both. First, the small caps had a face-ripping rally led by the worst-hit stocks during the February-March selloff – retailers, airlines, casinos, financials, homebuilders, etc. Then the week finished with heavy selling forming numerous reversal formations. 

The more companies report earnings, the more clear it becomes that some of the Q1 numbers still look good only because they don’t reflect the new normal – the lockdowns, the cost-cutting, and the lay-offs started in mid-March. The next quarter will be the one that will provide a reality check. 

Surprisingly, Amazon missed earnings estimates. Bezos said they will spend the entire operating profit of $4 Billion to protect their employees from the coronavirus. This is a big wake up call for the market. Not only are many companies’ revenues under pressure but their operating costs might have risen substantially for the foreseeable future.

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