The View from 5th Avenue

We Don’t Need No Stim(-ulation). Apparently, investors don’t need stim to go from bottom left to top right when hope is driving the boat. As a choppy week comes to an end, stocks were given a little gift this morning in the form of better retail sales and consumer sentiment, which has been good news taken as good news for once, rather than data potentially solidifying Republicans’ stance on stim. Further, leading indicators TRAN/S5RAIL/FDX all closed at all-time highs (though JB Hunt and Kansas City Southern reports weighing today). Investors have had a lot on their shoulders of late (ya think!?) between insecurity about the economy, renewed corona concerns, an impending election and the fiscal stim tug-of-war (in no particular order). However, after 3 days this week of declines, all three major US benchmarks have been able to re-route into positive gains on this day of options expiry. From where does this confidence stem? FOMO, for one. Also, earnings have been ok (who needs Banks anyway), and Covid is Europe’s problem (this week). Not to mention, stocks look ever shinier when one looks at yields. So, why let future potential problems get in the way of gains now!?

Everyone Remain Calm… Apparently the S&P posting its first consecutive down days in a month was enough to ruffle some feathers, as US indices are lower once again on the heels of a somewhat ugly red day across the rest of the globe. With regard to the main narratives the market has been watching (stimulus, Covid, economic recovery, election) nothing has drastically changed, but that itself doesn’t bode well for a pre-election fiscal injection as the Nov 3 countdown clocks ticks and the virus situation continues to look incrementally worse in Europe. Still the damage in the US today remains limited (S&P only back to last Friday’s levels) and some profit taking can be excused when stocks are near their all-time highs in the middle of a pandemic-fueled recession. It’s premature to say this is the start of a real “wakeup call” as opposed to a pause for thought, and it’s precisely at these moments of doubt that FOMO is at its most potent. Banks are making a guest appearance near the top of the sector chart after taking an earnings season beating the last few days, along with its more successful cousin Financials, which have charted a smoother path by delivering the beats, today coming from Morgan Stanley (MS +1.1%) and Charles Schwab (SCHW + 3.6%). The Transport space remains a tug of war zone between red hot shipping/logistics players (JBHT +1.4%) and the airlines, weighed upon today by another depressing earnings report form United (UAL -4.4%). Pharma is worst performing; Vertex (VRTX -20%) is patient zero there after stopping development of a promising rare disease drug. The usual high flyers Software, Media, Tech are also lagging as the FANG endures some selling… but with indices pushing new highs on the day, it would only take a little buy the dip action in those names to sneak out a surprise green finish for the S&P…

Let the Games Begin… There’s something for everyone today, with the earnings kickoff presenting a range of reactions, Apple (AAPL -3.4%) in the midst of presenting its latest iPhones (just taken a big leg lower), and Amazon (AMZN -0.4%) flexing its muscle through its Prime Day sale. Not to mention stimulus headlines, vaccine news, a Supreme Court nomination hearing, and the election only 3 weeks away (plus the rare sight of NFL football on a Tuesday set for tonight). While facing a whirlwind of information, indices appear much more subdued on the surface vs yesterday’s helium-like rise. The S&P has been modestly lower throughout the day, and the Nasdaq moving between positive and negative territories, with expectations tempering from McConnell and Pelosi after the EU close weighing a bit. Banks are the worst performing group: at Citi (C -4.4%) and JP Morgan (JPM -1.7%) initially garnered a positive initial reaction to solid beats on Investment Bank revs and lighter than expected credit loss provisions, but both banks warning of a slow road to economic recovery dampened the reception. It could be worse though, just ask struggling airlines which are dragging on Transports after Delta’s (DAL -2.1%) results disappointed and it delayed $5bn in aircraft deliveries. Cap Goods are lower too as Fastenal (FAST -4.1%) saw sales growth slow as demand for safety supplies dwindled. Blackrock (BLK +4.2%) fared better as AuM swelled to a record (though Financials as a group are lower) and Johnson&Johnson (JNJ -2.5%) saw its beat and raise overshadowed by the pause to its vaccine trial. Amazon has kept Retail buoyed in the green (at least before just now rolling over with Apple), as has Disney (DIS +3.8%) for Media after announcing a restructuring to shift more focus to its streaming business. So that’s the long version of what’s driving markets today, but…

Money talks – Markets once again trading in the green. Yes, stimulus talks were stopped Tuesday afternoon via a tweet, but that was only until President Trump threw out his own bid. So now both sides are talking again, and stocks are still watching (Pelosi said no to a stand alone airline bailout, which hit markets earlier, only for them to recover). Stimulus is coming. When is the tough answer. With a new hurricane about to hit the South, Oil has moved back above $41 today, and this has put the Energy names in the outperformance category. But all of the indexes are faring well, and this has most sectors higher. Banks will be in the news next week as they start the earnings season (see below), but Morgan Stanley (MS +1.1%) got ahead and announced they would be buying Eaton Vance (EV +48.2%), and this just after the closed the E*Trade deal. Treasuries have seen their yields rise this week, but the 30-year was trying to break that trend today ahead of the 30-yr auction (yield current 1.56%). The auction had a lower bid-to-cover (2.29) versus the previous 12 (2.35), and had a higher dealer participation (23%). This will likely keep a lid on any more yield improvement for the day. The S&P needs to stay above Tuesday’s high of 3431.56 to keep the short term turn around positive, but the advance/decline line on the S&P 1500 is also encouraging for the bulls.

What’s the Word, Jerome?… We delayed this View by a few minutes to accommodate the 2pm release of FOMC minutes, but the transcript delivered few surprises, and indices remain at the highs of the day along with Treasury yields. As expected, FOMC members agreed that economic activity has picked up (back to about 3/4ths of pre-pandemic levels) but concern remains that fiscal support is needed. Interesting to note that some members didn’t see the need for enhanced forward guidance, and that the guidance is not an “unconditional commitment”… that suggests rates don’t necessarily have to stay near zero for as long as currently forecasted. Still, we’re seeing little reaction from the market.

UPDATE: 2pm Strikes… And stocks go lower just before I hit send on the View (procrastination pays off?). Anyway, stocks have dropped fairly sharply over the last few minutes as word broke the House will go forward with a vote on the Democrats’ proposed stimulus bill even without gaining Republicans’ support (thus it won’t pass the Senate). The S&P is now hovering barely in the red while the Nasdaq has held onto gains relatively well. The sector outperformers/underperformers described below still hold true relatively speaking, just on a lower absolute level (sadly the Green Day pun does not…)

Windows Never Fully Dressed. Following yesterday’s lack of stimulus headlines, which put a negative spin on the day/quarter end, markets came back roaring today, thanks to an update in that regard. Markets are on track for the second consecutive quarter of dramatic gains, continuing an historic recovery that few predicted in the depths of March. The move aggressively higher is a tad surprising, given the depression cloud settling over America after last night’s repugnant clown show / debate. Apparently though, “the debate changed nothing, except to diminish the country’s dignity a little bit more (Ramesh Ponnuru).” Thus, investors have chosen to ignore the dull political hangover drumming on their brains and instead focus on the fact that Treas. Sec. Mnuchin suggested he’ll offer Dems a $1.5trillion proposal in aid. Further, economic data showed US companies added more jobs than expected in September. Still, the S&P is being led by Healthcare, as vaccine developers rally thanks to promising signals from Regeneron (though the stock has fallen today as Wall Street criticizes the results). Moderna was up almost 7% yesterday and Pfizer (+2%) and BioNTech (+3.1%) are following suit today after revealing more detailed early vaccine data. Natch, tech is not far behind. Nvidia (+2.5%), Amazon (+1.5%) and Apple(+2.2%) are performing with their usual charm, despite a disappointing show from Micron overnight (MU -6%) after halting shipments to Huawei. The whipsaw nature of the past 2 weeks has left investors heads spinning. Unfortunately, we still have August Personal Spending/Income, September ISM figures, and the NFP report still this week. Dumpster. Fire.

September’s Not Over Yet… Yesterday’s “buy everything” session sparked hope for a more positive conclusion to what’s been a month to forget, but US stocks are once again finding themselves on the receiving end of an uncomfortable reality check. It seems any month-end/quarter-end boost has quickly evaporated, and a combination of alarming series of Covid headlines and an alarming lack of stimulus headlines have put a negative spin on what was at first looking to be a fairly flat day ahead of the first Presidential debate tonight. Still the S&P has mostly held yesterday’s low (3333) and is now attempting to reclaim some losses as 2pm nears. Defensive sectors like Food Retail, Utilities, and Healthcare have fared relatively well, but have been surpassed by Semis which are now leading the Nasdaq back into positive territory as they manage to stay hot with Micron (MU +2.5%) earnings coming after the bell. The risk-off tone has the losers losing once again, with Banks giving back a chunk of yesterday’s gains and Energy the biggest laggard as crude plunges through its 100d moving average

“Run away, Run away” – Well, not today.  The S&P 500 continues to hold the June high (3233) support and investors are using the opportunity today to buy some of the names that have been working this year (decade).  Tech once again is leading with help from Apple (+2.4%) and Microsoft (+1.8%), and FANG is up 1%.  Overall breadth in the SPX is positive, with 400 names trading higher.  The sector lagging?  Energy (XOP -1.2%).  Even though participants are adding to their favorite stocks, US Treasuries are still in the green (10-yr yield 0.656%) as well as the Dollar (DXY +34bps), so it’s tough to say today is a risk on day.

Fasten Your Seatbelt.… From here on out (“on out” = the rest of 2020 at least) we are in for a bumpy ride — ok, maybe the roller coaster started some time ago. Either way, today has been further proof that this year will go down swinging. Nothing we didn’t already know was revealed – more of the same pandemic and president-related concerns—yet, markets bobbed up and down over the course of the morning then ramped back up to break +1%. That said, this month has pulled the S&P down more than 9% and though markets are well into the green now, it doesn’t feel very sturdy. In fact, the S&P entered correction territory early this morning, following jobless claims that did little to instill confidence in the economic recovery. The weak report underlined Fed Powell’s words yesterday that more needs to be done fiscally. Stocks were able to reverse course initially thanks to a record number of home purchases that proved just how much life has changed since the pandemic and then were fueled higher again by speculation surrounding the potential for stimulus talks to resume by Ms. Pelosi and Mr. Mnuchin. Tech stocks are outperforming the charge as per the usual, in conjunction with..oh hello banks (Jeffries had a record quarter and a broker recommended buying Goldman amid volatility this am). Only healthcare is on the opposite end, but doing little to cap any potential gains. One warning. According to strategists, it would be wise to keep an eye on QQQ’s into next week. If selling perks up again and the $270 level is taken out, the downside risk could be immense. It’s a very long way down.