My contention is that it is a tough and "newsy" market to trade in:
* Breadth deteriorated throughout the day -- ending less than two-to-one positive.
* Bonds were unchanged. The 10 year U.S. note ended the day at 1.525%.
* Crude oil broke the $50/barrel level -- closing at $49.91 (-$1.65). Oil vey!
* Gold was not a safe haven - lower by seven bucks. (I sold the balance of my GLD  (GLD) last week).
* Banks were up on the day, but well off the morning highs. Not good -- and I believe I will have a chance to move back to large sized on a continued correction in the space.
* Cyclicals are still weak -- taking the message from the bond market.
* Retail picked up a bit.
* Cannabis continues to trade lower after an early January rise.
* FANG was ++ but Alphabet (GOOGL) (disappointing sales relative to expectations) put a wet blanket in the after hours.
* Caterpillar (CAT) continues to break down. It's still a dog.
* Apple's  (AAPL)  action should concern bulls.
I have limited conviction in the near-term market direction.
I continue to maintain large cash reserves - levels not seen in quite a while. And I feel comfortable doing so.
Today was a win for the Bears -- even though the S&P gained. IMHO.

The gospel according to Tony Dwyer says don't get too bearish:

The market is in correction mode but despite our recent market and sector downgrade, we do not want to become overly negative. The simple fact is that we pulled in our horns on January 20 because of the extreme overbought condition, not because of the coronavirus or significant fundamental deterioration in the background. Although the S&P 500 (SPX) needs further correction judging by our favored 14-week stochastic indicator (Figure 1), our four fundamental reasons for optimism remain in place:

1. The folks printing the money are going to continue to for the foreseeable future, and the Chinese stimulus overnight was example of how quickly the global central banks can intervene.

2. Money is widely available to corporate and households at historically low rates.

3. The U.S. economy is doing well on the back of full employment, high confidence, and the Millennial demographic

4. An inflection in the global economy from historically weak levels. Today's global PMI data and the US ISM report reinforce that the global recovery already began. The breadth of countries in the Markit data showing positive year-over-year change continues to inflect off the low (Figure 2), while the U.S. ISM Index jumped above 50, to the highest level in six months (Figure 3).

Summary - We continue to have offense ready. The question is whether the virus has the potential to reverse the global growth recovery, and there is no way to judge that right now. As a result, the only way to determine a better entry point is when the market discounts any potential negatives by relieving the intermediate-term overbought condition. Despite last week's increased volatility, our favored indicators are not in a place that would suggest becoming increasingly offensive quite yet, but the fundamental backdrop should allow comfort that any meaningful weakness should prove temporary.

After a $170/share rise in Tesla's (TSLA) shares today...

Martin Baccardax (@mdbaccardax) tweeted:
Tesla (TSLA) :
Days from $300 to $400: 976
Days from $400 to $500: 25
Days from $500 to $600: 18
Days from $600 to $700: 4

The action is none too sporty.

I "should" be reshorting now (with the S&P regaining 36 handles) - as downside may dwarf upside -  but I am not.

I have no confidence regarding the near term market action.

But my red tickets are close by.

I will be in a meeting from about 12:30 to 2 pm today.

From Peter Boockvar:

The January ISM manufacturing index got back above 50 at 50.9, up from 47.8 in December and that was better than the estimate of 48.5. New orders also got back above 50 for the first time since July, rising to 52 from 47.6. Backlogs remained punk at 45.7 but that is up 2.4 pts from December. Inventories remained below 50 for the 8th straight month, down .4 pts from December. Export orders rebounded by 6 pts to 53.3, the best since September 2018. Employment rose 1.4 pts but is still below 50 at 46.6 and hasn't been above 50 since July. Prices paid rose 1.6 pts m/o/m to the highest level since March at 53.3.

In terms of breadth, of the 18 industries surveyed, 8 saw growth vs 3 in the month prior which matched the least since 2009. Versus 15 in December, 8 saw a contraction.

The ISM said "Comments from the panel were positive, with sentiment improving compared to December...Global trade remains a cross industry issue, but many respondents were positive for the first time in several months."  

Bottom line, if it wasn't for the virus spread and its hugely disruptive impact on the 2nd biggest economy I'd say that today's ISM is the first notable economic data point that is reflecting a sign of stabilization in manufacturing for the 1st time in a while upon the signing of the Phase One deal and USMCA even though companies are still complaining about the tariffs, backlogs are still weak as is employment. Remember, this is just a sentiment index and we need to see what hard data comes from this to see whether this is more than just a trade deal bounce.

While the ISM says that they receive "survey responses throughout most of any given month, with the majority of respondents generally waiting until late in the month to submit responses in order to give the most accurate picture of current business activity" there is no mention whatsoever in this release about the possible impact of the partial shutdown of China and the global ripple effect that it's having and will continue to for the next few months we assume. Thus, the February figure next month will better capture what the impact is. It would be naïve to think the US economy will be immune.

Markit also reported its final manufacturing index and said this in their release: "US manufacturing limped into 2020, with falling exports dampening output growth and causing a pull back in hiring. The survey data are consistent with factory production falling moderately...Weakness looks broad based. Rising demand from households has helped support production in recent months, but January saw a marked slowing in new orders for consumer goods." On the bright side, "More encouragingly, business expectations for the year ahead perked up, coinciding with an easing of trade tensions and the signing of new North American and Chinese trade deals."

ISM MANUFACTURING

A reminder - I am out of gold.

* A $7000 price target on Tesla

"Meshuganah is Trump."
- Grandma Koufax
Tesla's (TSLA) shares are another +$60/share higher today.

Credit Suisse downgrades (VIAC) from Outperform to Neutral.
In looking at the somewhat lower cash flow and EPS numbers I would think that it is in the stock - but the stock is proving me wrong:Downgrade to NeutralTarget Price (USD): 37.00

Outlook: We are lowering our rating on ViacomCBS from Outperform to Neutral as a result of a second meaningful downward FCF revision post the Viacom/CBS merger announcement. ViacomCBS's new, less cash-generative profile reduces its ability to repurchase shares (which would have helped offset long-term terminal value concerns), and makes the company's P/FCF valuation less compelling relative to its inherent risks. While we acknowledge the potential shares might be oversold in the short-term (driven by Street estimate cuts and traditional pay TV shortfalls for 2020) and trade at a deep discount to asset value, as well as the clear potential for CEO Mr. Bakish to drive enhanced merger synergies, we now see only 8% upside potential to our new $37/share target price for 2020, for which a Neutral rating is appropriate.

Estimate Changes: We are lowering FCF by $500m-$600m each of the next three years (we have cumulatively cut 2021 $1.5B since August ) after reviewing management's strategy to invest in content to drive streaming, defend its traditional networks, and ramp third party sales, in addition to audience trends and incorporating disappointing traditional pay TV cord cutting this earnings season. We cut our EPS estimates by $0.18 for 2019 (to $3.64), by $0.35 for 2020 (to $5.91), and by $0.40 for 2021 (to $6.69).

Thesis: Given estimate reductions the past six months, ViacomCBS is clearly in the "show-me" category, with a need to prove out merger execution and synergies as well as show its ramp in Hollywood content spending (both opexp and working capital) will produce greater future profitability rather than just defend current market positions at what would then be lower margins. Other keys will be: renewing its NFL package at a reasonable price despite potential competition from Disney, crucial for CBS distribution leverage; fending off increased competition as Turner shifts to an unscripted strategy; garnering Hulu and YouTube distribution (Viacom's networks missed out on the 3% the two services added to pay TV subs in 2019); whether the company's streaming services will ramp to the point they offset investors' traditional networks concerns; and how M&A and capital return strategies evolve.

Valuation: ViacomCBS trades at 10x our $2.03b 2020 FCF estimate. We lower our DCF TP $15 to $37 due to our FCF estimate changes over the past 6 months (DCF inputs remain 9.6% cost of equity, 5% pre-tax cost of debt, and -2% terminal growth). Risks include digital disintermediation, content popularity, the economy, and M&A/capital deployment strategy.

I have covered small shorts in (BEN) , (DIS) and (MU) on the opening.
Getting ever more liquid.

* After last week's fall, a modest market bounce back appears in order this morning
* After selling a large Spyder put position late Friday afternoon I am back to a very, very liquid gross and net exposure - this reflects my cloudy crystal investment ball
* Another lesson learned - that is, in an interconnected world and in an age of growing uncertainties, we should always consider the unexpected
* Don't pay attention to the self confident, near term market forecasts that you will hear all during the day - they are little more than guesses

"Speak a little truth and people lose they mind."
- Ice Cube, Straight Outta Compton

With valuation levels inflated and market participants complacent (among other numerous other headwinds) I positioned myself back net short in the middle of last week.

The strongest daily market drawdown since October, 2019, caused me to take in my entire Index hedge (which was taken in Spyder (SPY) puts) late Friday. For the second time in about 10 days I recorded a nice gain as my timing was lucky. From my 3:23PM post, "I Am Out of Spyder Puts":

"As we enter the weekend I am calling an audible and I just took some nice profits in my (SPY) puts just now (with the S&P Index -60 and the Nasdaq -145). We are in a newsy market and I feel better without any bold and aggressive option trades over the weekend.

Moreover, this is my second very profitable put trade on Spyders in the last two weeks - I don't want to test my luck. Bulls, bears, pigs."

The tone of the world's markets this morning seem on better footing.

While all is temporarily well in our financial world no one has a clear view that the rally will be anything other than momentary.

This morning we will hear a lot of confidently expressed market views - I would not pay much attention as they are only guessing! (Buffett's quote that we only uncover who is swimming naked when the tide goes out, applies to the market's action on Friday).

I certainly do not have a clear view as expressed in Friday afternoon's "Straight Outta Wuhan": 

The streets of Wuhan, the epicenter of the coronavirus, are eerie these days.

Only recently the city was unknown to most in our country.

No more.

Once again we learn the lesson that, in a market elevated and artificially influenced by central bankers' liquidity and with so many products and strategies that worship at the altar of price momentum, an unknown factor (that few "talking heads" considered) -- a virus -- would be the straw that breaks The Bull Market in Complacency.

Just as few envisioned that interest rates would move much lower (14 months ago), I know not a soul (save the Perma Bears) that expected, as we entered 2020, a large, potential market drawdown.

Contrary views that lie outside of the herd are always something to pay attention to -- it is the basis and rationale for the publication of my annual Surprise Lists.

Like Diogenes with his lantern, my list of year-end surprises is a cynical search for truth as I engage in my annual assault on the consensus and on "Group Stink."

Here is what I wrote in my 15 Surprises for 2020:

Surprise #2: The consensus expectation for 2020 S&P EPS of about $178/share is, for the second year in a row, way off mark as EPS growth falls for the second year in a row because of a continued decline in profit margins that +3% revenue growth can't overcome. 2020 S&P EPS per share falls to modestly below the $163-$165/share recorded in 2019.

Investors, realizing that corporate profits have essentially been flat since 2014, begin to panic at the "new normal" of subpar economic growth. Another year in which earnings growth fails to recover reverses the valuation upwards reset (so conspicuous last year) as market participants grow increasingly concerned about the real economy's secular growth prospects.

Much of the more than +25% 2019 reset (higher) of valuations is reversed in 2020 - as price earnings multiples decline by about -15%, producing a modestly larger full year decline (-17%) in the S&P Index. 2020's market drop is the worst since 2002's fall of -23%.

The S&P Index closed at 3265 on Friday. The year's high is made in the first month of the year (at under 3350), the 2020 low in the S&P Index is 2550 and the close is about 2700.

The Lesson Learned

On Jan. 22, 2020, the S&P Index peaked at about 3325 (less than 1% below my projected peak of 3350 featured above in my Surprise List).

At this moment, the S&P Index is trading at 3229 and is 54 handles lower on the day. That's nearly 100 S&P points below the January high.

The proliferation of the coronavirus (and its impact on the capital markets) provides us with another lesson learned.

That lesson is, that in an interconnected world and in an era of rising political, geopolitical, policy and economic uncertainties, we should always consider the unexpected.

Bottom Line

Stay independent in view.

Always consider reward vs. risk.

If you are as uncertain (as I am), sit on your hands.

Finally, stick to your investment discipline, methodology and time frames which are importantly a by-product of your risk profile and appetite. 

* The coronavirus can not be "cured" by the injection of central bank liquidity
* The coronavirus will likely move global economic growth to "stall speed" or less in 2020
The big difference between the depth of the potential (disruptive impact of the) coronavirus vs. other issues (valuation, lack of earnings growth, etc.) is that the coronavirus can not be "cured" by central bankers. Moreover, the length and breadth of the disruption is unknown.
Basically, the coronavirus is a fundamental and unknown shock to the global economy - especially to China which appears to be virtually paralyzed by the possible contagion.
And the coronavirus will not be alleviated by the injection of central bank liquidity (as China did over the weekend).

The WHO and CDC are now more important than ISM and GDP:

My friend Jon Basile, the head of Global Macro at AIG, said it well last week. "WHO and CDC are more important acronyms now for markets than ISM and GDP." 'Now' is also a key word here because this will pass but with the obvious unknown of how much business and lives are lost until then. We do by the way see the January ISM today and it might just capture some of the immediate impact of the spreading virus but likely not much.

Markets again think the Fed will come to the rescue in the face of any economic slowdown from here. It's almost like a rate cut and/or expansion of their balance sheet is a vaccine that can cure any economic ill. The December fed funds futures is yielding 1.155% right now, thus assuming about an 88% chance of two rate cuts by then and with the January 2021 contract yielding 1.115%, assume 100% around then. My friends at Quill Intelligence last week to this said "permanently subduing volatility and denying markets a relief valve to clear out malinvestments, further conditions investors to expect a growing response from the Fed...Keeping volatility in check is what the Fed is targeting to elongate the business cycle." In this case we're talking about market volatility, aka asset prices.

As measured by the St Louis Fed's Financial Stress Index, in its history dating back to 1992, it has never been more inoculated by the Fed with easy financial conditions. The lower the level, the less stress.

ST LOUIS FINANCIAL STRESS INDEX

What is also becoming apparent, the Fed's rate cuts already in place had about zero impact on economic activity because they are already so low and thus was never a binding constraint on activity prior to the rate cuts. You'll say to me, 'well what about housing' and I'll say that the drop in long rates which the Fed doesn't directly control is what has lowered mortgage rates and has helped housing and that fall in long rates is in response to slowing economic growth globally mostly (the self correcting mechanism that is free markets). C&I loans outstanding have fallen to a y/o/y growth of just 1%. Capital spending is punk. Low rates have done nothing to help global trade. Auto sales, obviously sensitive to changes in rates, have not accelerated and consumer spending, as seen in Q4 was ordinary. My point here is that while the Fed is doing the only thing they know, diminishing returns end up being the result when you don't have many rates to cut from an already low level.

I purposely don't use this venue to talk politics as I rather talk policy but I just want to say this ahead of the Iowa caucus today and the primary's to come. There is the belief of some that if Bernie Sanders does well and gets the Democratic nomination that it would be a bad thing for the economy and markets. I firmly agree if he ends up being President that would be the case but I'm of the assumption that he has just about zero chance of winning a Presidential election so the markets instead should assume that Trump gets reelected the better Sanders does, whether you like that or not.

The Shanghai comp fall of about 8% was around the drop seen last week in the Shanghai futures. Also, a lot of the fresh reverse repos the PBOC conducted just offset maturing ones but they did cut the rate by 10 bps. The PBOC said it wanted to "ensure ample liquidity during the special period of virus control." That monetary vaccine again. The offshore yuan is back above 7.0.

Here are some of the January manufacturing PMI's that we saw today overseas but really unknown as to how much impact the virus spread is having. China's Caixin index (survey taken before the this all took place) fell to 51.1 from 51.5. Caixin said simply, "Manufacturing demand continued to grow at a slower rate, while overseas demand was subdued." There was though some light on the hopes that the US/China trade deal would result in clarity, "business confidence continued to improve, with the gauge for future output expectations on the rise and tending to recover after two years of depression, due chiefly to the phase one trade deal." Of course we can now throw this data point out the window as the Chinese economy shuts down in some places.

South Korea's PMI fell to 49.8 from 50.1, Indonesia dropped to 49.3 from 49.5, Vietnam's slipped to 50.6 from 50.8, Thailand's fell to 49.9 from 50.1 and Malaysia was down to 48.8 from 50. On the flip side, Taiwan's improved by 1 pt to 51.8, India's jumped to 55.3 from 52.7 and the Philippines went to 52.1 from 51.7. Japan's was revised to 48.8 from 49.3 initially but that is up slightly from the 48.4 print in December.

Quantifying the major disruptions seen in Hong Kong, Q4 GDP there contracted by 2.9% y/o/y and .4% q/o/q, not as bad as the 3.9% and 1.5% decline that was expected. On a q/o/q basis, this is the 3rd straight quarter of declines. Now we can throw the virus situation on top of this and we assume Q1 will see a contraction again.

Turning to Europe, their manufacturing PMI for January was basically left alone at 47.9 from the initial print of 47.8 but which is up from 46.3 in December. This is now 12 months in a row of below 50 reads but the best print since early 2019 has given hope to green shoots. Markit said, "Most encouragingly, order books moved closer towards stabilization, falling to the smallest extent since late 2018. With the survey indicating the steepest fall in warehouse stocks since September 2016, the new orders to inventory ratio, a key forward looking indicator for factory production, surged to its highest for nearly 1 1/2 years." What the impact will now be from the deterioration in the Chinese economy, Germany's largest trading partner, is of course the wild card for now.

The UK manufacturing PMI was revised to 50 from 49.8 prior and up 2.5 pts from December. That's the 1st time it has a 5 handle since April 2019 "as receding levels of political uncertainty following the general election aided mild recoveries in new order intakes, employment and business confidence." What's to come now though with the UK officially out of the EU are trade deals and that will be a bumpy ride. Reflecting those expectations has the pound down sharply today. The EU negotiator Michel Barnier and UK PM Johnson are already battling. I continue to like UK assets.

The shares of Apple (AAPL) declined dramatically on Friday.
Over the weekend the company announced that all of its Chinese retail stores will be closed for about a week period.
That will not be a bona fide problem for Apple - as it will only defer and push back sales in the region.
The real problem facing Apple (given the relatively large size of the Chinese market to Apple) is whether the company's supply chain will be disturbed and interrupted. That could be a potentially significant problem for Apple.

Danielle DiMartino Booth on the auto industry:

• Auto industry concerns are mounting as the combination of lower fleet sales and China being its second-most profitable market collide; headline January sales are expected to decline 0.6% with fleet auto sales down by a bigger 1.2%.
• Auto Rail Traffic has not been at current low levels since 2017's third quarter which concurred with the last U.S. auto recession, the Hurricane Harvey demand shock; the current environment threatens deeper production cuts in reaction to a double negative demand shock from slowing fleet sales and the coronavirus
• Retail auto sales are expected to decline for the fifth straight year in 2020, with current net auto buying conditions at 28%, similar to the last six quarters; however, for the past three months top-tier income earners' auto buying intentions have averaged 47%, the highest since June 2018, while intentions of lower-income earners are at August 2014 levels

The ball was in her court. And she fired it right back, again and again...all the way to a stunning victory in Saturday's Australian Open. But it was the father of the 14th-seeded 21-year old Sofia "Sonya" Kenin who stole the after-show. In Alex Kenin's words, he escaped the Soviet Union in 1987 because, "You want a better future for your kids." It was English and computer classes by day and driving a New York City taxi at night, even as he strained to understand the radio dispatcher. "But it's amazing the things you do to survive" he added. "[Sofia] knows about that and I think it made her tough." Clearly it did. And QI's hats are off to father and daughter in a world in need of uplifting news.

U.S. investors wake today anxious to see what the People's Bank of China (PBOC) achieved following the toxic ball lobbed into its court. The $21.7 billion on offer in reverse repurchase agreements was within the realm of 'standard' coming out of the Lunar New Year (LNY). Additional measures amounting to $174 billion in total will flood out of the PBOC. Caixin estimates the coronavirus cost the country $144 billion in losses in the restaurant, tourism and movie industries in the LNY's seven days. China's Transport Ministry said travel on January 30th, the last day of the LNY, was off by 84.1% compared to last year.

Closer to home, U.S. automakers, whose stock prices are hovering near their 52-week lows, are on pins and needles assessing the fallout of the coronavirus in their second-most important market in terms of earnings. Of course, their wrecked share prices don't yet reflect the unknown. What's happening here at home is plenty damaging to their prospects.

In the midst of Friday's market melee, Chicago PMI backlogs dove to 34.6. If this read on future demand doesn't improve, this quarter will mark the worst since the first three months of 2009. Prospects for improvement hinge on rebounding car production plans.

Regular Feather readers won't be surprised that 2020 retail car sales are expected to decline for a fifth straight month. J.D. Power forecasts January sales will fall 0.4% from the prior year, which is remarkable given the then government shutdown and full-blown recession scare.

But that's not where our focus is. Overall January sales are expected to decline 0.6% from a year ago dragged down by a 1.2% decline in fleet sales, which are expected to account for 24% of auto sales. We've long caveated the veracity of reported car sales headlines given fleet as being the marginal source of support for overall car sales for five straight years.

Even with this "fleet flattery," as we like to call it, Auto Rail Traffic (file under data that don't lie) was down by 10.4% in 2017's third quarter, the last U.S. auto recession. It took Hurricane Harvey's demand shock to reverse the contraction.

Looking ahead to full year 2020, fleet sales are expected to tick up to 19.7% of total car sales from 2019's 19.5%. Call that flat if any kind of exogenous shock hits either Corporate America or the impetus to travel which will manifest in lower demand for car rental fleets. At the risk of being rhetorical, a shock that fits both those descriptions is upon us - the opposite of Harvey, if you will. That takes us right back to the wherewithal of the almighty U.S. consumer to support yet another industry.

On the surface, Friday's University of Michigan final read on January consumer confidence gave little guidance. Netting out the three-quarter surge in car replacement following Hurricane Harvey and current net auto buying conditions of 28% don't provide much insight, aligned as they are with the six-quarter average of 29.1% since 2018's third quarter.

The same benign story is not conveyed if the income strata is woven into the analysis. At a net 9%, car buying intentions among the lower-third of income earners, who account for 15% of new and used car purchases, are at an August 2014 low. Enthusiasm in the middle is middling - at a net 32%, it's on top of its 12-month average of 31%. And then there's the All-Time-High Club. For the past three months, auto buying intentions among top-tier income earners have averaged a net 47%, the highest since June 2018 as markets began to worry Powell was going to push through with normalization of policy.

The best that can be said is today's auto sales figures will not feature the Big 3, which only report data on a quarterly basis. Detroit will need all the cover it can get as it braces for China's negative demand shock, especially given sales' fate rests with American owners of equities. The ball is in Powell's court.

And "it" starts: