Quiet, Please, Quiet… It’s almost as if investors have taken on the etiquette of golf patrons at the Masters, staying very quiet so as to not upset the ‘action.’ (Sure we’ll round up the week by carrying on with the golf analogy). The die was cast a bit early on after China’s March PPI registered at hits highest level since 2018. The US followed suit, its own PPI measures exceeded expectations, giving a bit of weakness to Treasuries but while such evidence of inflationary pressures might’ve sparked an intense selloff in the face of rising yields, that hasn’t been the case today. Sure the 10-year yield has already come along way in a short period of time, the case could be made that given where equities reside, yields could and should be higher yet. That said, yields were a bit perky today and banks/financials doing better as a result ahead of earnings next week. Amazon is helping retail after the vote in Alabama went against forming a union and LEVI’s giving apparel a boost on a ‘booming’ sales forecast. Seems the athleisure being folded and put back in the closet, the time for ‘real’ clothes is back. Much has been made of complacency creeping back into the market but option buying would intimate otherwise. This is a “wall of worry” in full force…

“Hello Friends”… Jim Nantz’s familiar greeting, the Masters Tournament theme song, birds chirping in the background: the relaxing sounds of a nice Sunday afternoon golf nap are upon us. Markets have continued on in a similarly sleepy fashion again today in what’s been an overall quiet week, but have US indices continued to inch higher as some comments from Powell forced traders to take one eye of the leaderboard momentarily. Of course his message is hardly different from what we’ve heard a thousand times already this year (“patience, patience, patience”) but like watching the Masters, sometimes its soothing just to hear it all again. With “lower for longer” top of mind the FAAMG gang is continuing its rebound tour, this time with Tesla in tow (NYFANG +1.1%) to drive the Autos sector higher as well. The usual rotation indicators of Banks / Energy are both among the laggards as Treasury yields and Crude give up some ground, but the concentrated Telcos is worst as Lumen (LUMN -3.5%0 trades lower after hosting its Analyst Day yesterday. With Q1 earnings on tap next week and more companies expected to actually provide guidance this go-around, it makes sense the market remains in a bit of a holding pattern for now. But with indices hovering near ATHs and the % of Bulls at its highest since 2018, things could be setting up for a dramatic “show me, don’t tell me” moment coming soon…

Roaring Back… It’s been an understandably quiet start to the week with European markets closed and many taking extra advantage of the long weekend, but things are far from static as stocks are soaking in the signs the US recovery is the real deal. Of course Friday’s blowout NFP print created some pent-up enthusiasm that’s now getting released, but more positive eco data this morning along with data over the weekend showing vaccine rollouts and economic activity like air travel picking up steam have added to the positive vibes. With Treasury yields holding steady, just about all S&P sectors are green though that’s left Banks as relative underperformers. Energy is the true exception, sinking lower as crude gives back its gains from last Thursday as traders take a second look at OPEC’s plan to ease supply curbs and some countries (India and France in the headlines today) struggle to get a tight grip on virus cases. NYFANG (+1.8%) is cruising higher, with Tesla (TSLA +5.2%) impressing on Q1 deliveries ensuring Autos is atop the sector table.    

No Fooling Around – If I told you last April 1st that a year from now the market would not only have recouped all of its losses but would be UP 18% from its previous all-time highs, you would’ve thought it was the dumbest April Fool’s joke ever. Not to mention not all that funny. But here we are. And equities aren’t joking around to kick off Q2 either, semis leading the charge for a second straight day giving growth a solid head start on value. Micron’s solid earnings along with a report in the WSJ about memory consolidation as well as Taiwan Semi announcing an eye-popping $100bn capital spend all helping the space. Most of the big tech names are joining the party but Apple’s inability to join the fray may suggest stock-picking might be a bit more discerning going forward. Value may be lagging but its not necessarily for sale (nothing is really) – energy leads that portion of the market, going better after OPEC+ agreed to making production increases at a more gradual pace. It had its best quarter vs growth in 20 years – it’ll be a big ask for that to continue.

This is the End… I think we all knew deep down that the strangeness of 2020 wasn’t going to simply fade away with the flipping of the calendar. Capitol riots, Reddit stonks, NFTs “worth” millions, beached cargo ships, oh my! Given all that’s happened these first 3 months of 2021, the action today feels like a bit of a dull sendoff to Q1. Naturally markets are shunning the Rotation trend that defined trading in the quarter, perhaps unsurprisingly given rising yields have been behind most of the recent “excitement” and much-advertised rebalancing finally seems to be kicking in some support for Treasuries (at least for today). Still that’s put some impressive green numbers on the board, with FANG / Tech taking advantage of the moment to put in a solid rebound performance (NYFANG +2.1%). On the flipside, cyclicals / Value are taking a breather (Banks / Energy in the red) despite Biden’s big $2.25tn infrastructure bill announcement coming after the close. It’s a rare example of a good narrative taking a back seat to the “already priced in” mentality, but the holiday-shortened trading schedule this week is also curbing any appetite for risk as traders will be unable to react to Friday’s NFP report.

More Q’s than A’s…Perhaps a bit of window dressing going on in Europe before tomorrow’s quarter coming to an end, but the same can’t currently be said for the US. Although US indices are attempting a reversal out of red as I type, volumes are meagre and things still feel unsettled from the Archegos fallout that has yet to be completely quantified ($10bn hit to banks speculated). Either way, the very banks who were burdened yesterday, are benefitting today (WFC +2%, GS +1.6%, MS +1.5%) as each one raises their hands to say “not it.” At the same time, March consumer confidence exploded from 90.4 (revised lower) in Feb to 109.7 in March – the highest since March 2020, helping classic reopening plays benefit (American Airlines (+2.1%), United Airlines (UAL +3%) and Carnival (+3.3%) are all spiking). However, there has been no tapping of brakes on the reflation trade. Vaccine rollouts / infrastructure bills / inflation coming: none of these narratives are new, but their pull is simply too strong for yields to sit still for long. The 10-yr is still below the 2% level at 1.721, but that feels like a magnet at this point. It’s a tale of two stories for yields – fear of inflation vs. optimism about the economy, and it seems the latter is winning as investors see rising earnings growth expectations, historically low corporate borrowing costs and pent-up consumer demand. The spotlight is now leaning towards NFPs on Friday, but in the meantime we can expect some quarter-end rebal swings and an update from President Biden on his infrastructure plan. Still a lot to digest before Peter Cottontail struts into town.

Bend Don’t Break… US indices were modestly red through the morning but nonetheless there’s been a collective sigh of relief as it seems the fallout from the “once in a decade” series of margin calls on the highly-leveraged positions of Archegos Capital Management will be relatively contained. A few prime brokerage banks caught up in the mess are smarting today as they work to minimize their own damages (GS -1.4%, MS -3.0%, WFC -3.5%), but given how “on edge” investors have been with stocks at ATHs, many are glad the saga doesn’t seem to carry wider systemic ramifications. That relief has picked up into the afternoon, and now even the battered Media space has turned green, with broker upgrades to Facebook (FB +2.6%) and Twitter (TWTR +2.2%) covering up for continued weakness in the names at the center of Friday’s drama (VIAC -6.2%, DISCK -1.2%). The reflation trade appears to have the day off to start this holiday-shortened week: the 10-year yield remains relatively well-behaved right around 1.7% as quarter-end rebalancing provides some much-needed support for Treasuries. Energy joins Banks/Financials in taking a breather near the bottom of the sector table, even as as crude remains positive in the face of reports that the Ever Green cargo ship has been refloated in the Suez Canal. Defensives fill in the top spots, with Utilities, Household Goods, and Telcos all outperforming. All the choppiness hasn’t stopped the Dow from challenging for a new closing high, as Boeing (BA +2.3%) is carrying the price-weighted index higher on back of an order for 100 737Max planes from Southwest Air (LUV -0.4%).

End on a High Note… After a choppy week that saw a growing lack of conviction start to stir up some small signs of panic, US equities are following on from yesterday’s vaccine optimism and riding the Reopening trade into the weekend. The S&P is now positive for the week as Materials, Transports, and Energy outperform (crude climbing again as no progress has been made to clear the Suez Canal), and renewed risk appetite is helping small caps (IWM +0.4%) partially rebound after a painful few days. Semis are somewhat surprisingly the best performer as chip shortages continue to raise headlines – the SOX is now +1.1% for the week. Banks were previously leading after the Fed announced a loosening of restrictions on dividends and buybacks after June 30th, but the sector has stepped back as yields have retreated through the morning. Autos (Tesla) and Media are the laggards following the usual reopening trade mold.

Rotation Response… There’s been plenty of questions as to whether the Rotation trade’s recent “pause for thought” was turning into something more sinister, as yesterday’s action suggested conviction could be waning. But at least for today markets are back in familiar form, with Cyclicals (Energy, Transports, Cap Goods) leading the way higher TMT (Tech, Media, Tesla) act as a drag on the Nasdaq. More booming eco data is helping drive the reopening narrative (more below) and of course Treasury yields behaving is helping to keep things civil – better demand on today’s 5-year auction assuaged any immediate fears of a repeat of last month’s lackluster 7-year auction that seriously spooked investors. Crude has continued to recover most of yesterday’s plunge despite word that traffic through the Suez Canal should resume flowing today or tomorrow. S&P Semis are managing to stay in the green despite lukewarm reception for Intel’s (INTC -0.5%) plans to expand its manufacturing capabilities.

Already Mid-Madness… The NCAA College Basketball tourney has just officially tipped off, but March feels like it’s already seen plenty of Madness thus far. Relatively speaking today actually feels pretty calm, at least when compared to some of the wild “yield anxiety” driven days we’ve seen this month (aka yesterday’s Tech wreck). Treasuries have been stable throughout most of the day apart from a brief pre-market dip on word the Fed won’t extend SLR relief, but given the announcement has been somewhat expected the news only delayed Tech’s inevitable mini-bounce into the weekend. Banks, however, have had a tougher time shaking off the Fed’s crackdown and the sector is giving back some of the multi-year highs it notched yesterday. Along with Semis / Media, Energy is also rebounding from a rough Thursday as oil cleans up some of the spillage that’s made this the worst week for the commodity since October. Notably negative among the FANG outperformance is Software, which is being held back by Visa (-5.0%) after the DOJ announced an investigation into anti-competitive behavior around fees (MA -2.5% as well). Overall an understandable pause for breath to end a busy Fed week, but with the 10-year yield looking like it’s destined for 2%