Doctor Jay… Picky Fed-watchers apparently wanted to hear only about the medicine, not the illness. Dr. Powell checked all the boxes on reiterating the Fed’s policy prescriptions, but his less than peppy prognosis for the sickened US economy’s recovery was enough to make jittery investors to lose their patients. Certainly some profit-taking is warranted given the rush higher (recently hot rotation sectors are the biggest underperformers), but taking a wider view FOMC + FOMO remains in place as a dangerous combo to pick a fight with.

Nasdaq Attack: You cant keep a good index down. It helps when your components include you know who and so good, bad or otherwise for the overall markets, the Nasdaq keeps calm and carries on, now +ve for 8 of the last 9 days. Defensive and reliable tech sectors are setting the pace while volumes have been relatively light. Thank Chairman Powell’s pending appearance. Stimulus is the number one reason we are where we are, bulls and bears can at least agree on that much. And with concerns about the pending fiscal cliff as unemployment looks set to end next month and no future relief coming from Congress, Powell is the only one that controls the purse strings right now. Speaking of, the market rebound has far overshot the amount of $$ put into the system – does the below look right/feel good to you? Markets are priced for perfection – a scary thought given they are most definitively not…

Do NOT Blink….You might miss something good like Nasdaq 10,000! Which is interesting, because first thing this morning the market was collapsing under its own weight as Treasuries were bought and hedges started to look attractive again. It seemed as though the last 2 weeks of covering/squeezing had come to an abrupt end. The proof was in the momentum reversal and curve finally flattening, as some of the best performing cyclicals from the past 2 weeks were put back in their place (lower). See: energy, financials and airlines. However, you can’t keep a “good” market down and the invisible hand came back in to buy mid-morning, leaving the markets in an optically meh day of losses, down just 70- bps from almost double that earlier in the day. Apple also helped, of course, rallying over 3% on news that it will shift its own main processors in Mac computers. The pain is real.

More Value Violence… Rotation rolls on after Friday’s fierce move into Value/Cyclicals/smalls caps as investors scramble to avoid missing out on the bounce of the beaten-downs coming on back of the reopening narrative. The usual Value suspects (Energy, Banks, Autos, cruisers, airlines) are leading the way while FANG weakness makes it clear where the funding $ are coming from and keeps the wider indices somewhat at bay (flexing their concentration risk muscles).

Markets have been showing true signs of re-risking the last few days. Treasuries finally broke out of their tight Covid range (0.60-0.80%), and the Dollar was moving lower (Aussie back to pre-Covid levels). It was the much better than expected ADP on Wednesday that finally pushed some off the sidelines, and the data proved prescient.  Today’s NFP not only beat estimates, but surprised EVERYONE with a gain.  Animal spirits are alive, and the S&P 500 moved back above 3200.  Nasdaq is also just a couple points away from All Time Highs.  All sectors are green, but Value is outperforming.  And in the Small Caps joins the other global indexes above their 200 day moving averages.  All point for the potential for further upside as momentum funds are forced to pivot.

Streaks Are Meant To Be Broken… On the heels of the S&P’s first 4-day win streak since February (and a new all-time high for NDQ), it seems today’s “breather” isn’t ruffling too many feathers (especially as indices now head back toward positive territory). After all, a pause seems reasonable given the last 50 days have seen the S&P sprint +37% higher, the best 50-day pace in the index’s history. And history would indicate things might only be getting started: looking at the other largest 50-day rallies, the average S&P return 1-year later +17%.  

ROM THE DESK

We Meet Again… – Hello 3100 S&P! Nice to see you again. I want to say it’s been a while, but it really hasn’t been that long has it??!! Well you know what they say time flies in a global pandemic and ongoing period of social and civil unrest! Tell 3200 I said hello and hope to see it soon too. The prospect of seeing actual friends continues to drive the market higher, as the reopening/positive linearity narrative continues. Add in underweight positioning, FOMO/TINA/CASH (not an acronym) and the desperate search for yield, nothing is getting in the way of this market. Dunkin Donuts (DNKN +2.8%) revealing better MoM comps (ongoing theme for restaurants) and Microchip (MCHP +11.7%) pushing the semis after it not only reveals guidance, but raises it! What a novel concept. The value/cyclical theme has the bull by the horns today though but no clear trend change just yet.

Like the US Postal Service Motto… Neither snow, nor rain, nor COVID, nor China tension, nor riots in the streets will stop this equity rebound from continuing on (or something like that). Rotation is back in play once again, with Autos, Energy, and Transports leading, while FANG weakness has kept the NDQ a from making another leap toward a new ATH (for now). The narrative of the market ignoring the bad to focus on the good is becoming repetitive, but it seems two old-favorite acronyms are now back in style and being mentioned more and more as driving forces behind the market’s rise

Logistics Need Not Apply…Stocks have made their choice and they choose hope (today). US manufacturing rising for the first time in 4 months certainly helps. As does the unprecedented levels of Fed stimulus, record low bond yields and the largest S&P tech names benefitting from the effects of COVID (FANG +1.4% today, Pharma -1.4% on disappointing Gilead remdesivir results). However, stocks are going to face a multitude of uncertainty into the back half of 2020. Sadly, the worst outbreak of social unrest in decades will be one major factor. Quarantine may have loosened a bit, but new curfews are being imposed and the Nation’s Guard is required to stand watch with Trump urging “domination” of protestors. Further, The US election could be frightfully racially charged. Also, the aforementioned protests could very well spark the second wave of coronavirus. Let’s put it this way— The US was already being tested by its first impeachment since 1998, the worst pandemic since 1918 and the toughest economic conditions since the Great Depression (CNN). Now, social unrest is added to that list. And we haven’t even touched China.

Say what? Stocks have been in a defensive stance as markets wait for the 2pm White House press conference on China.  Until a few minutes ago, few knew what Washington was going to do for China’s new security law in Hong Kong.  But it looks like Trump is moving towards some sanctions on Chinese financial institutions, along with some graduate student visa limitations; neither look too impactful.  The S&P 500 continues to trade above 3000 though, and seems to be more focused on the post virus economy than on China trade… for now.  Semiconductors are outperforming thanks to Marvell’s earnings last night, but the broader tape has a defensive tone to it.  Mega Tech, Utilities and Treasuries (10-yr) are higher, versus Banks and Energy.  With the President speaking soon, and the MSCI rebalance on the close, the scope of the trading day can change over the next two hours.