The View from 5th Avenue

Reaching For a Record… Don’t roll that B-roll footage of smiling NYSE floor traders just yet…the S&P and Nasdaq are currently poised to notch yet another record closing high but it hasn’t been an easy trek. The optimism that reigned pre-market as investors took a trip Phase One memory lane has been leveled out, as a disappointing August Consumer Confidence data offset some of the enthusiasm born from July Retail Sales data earlier this month. Still, Housing data continues to burn red hot, though Homebuilders (ITB -1.0%) are taking a dip into their impressive ytd gains (ITB +27% ytd). Tech hasn’t been its usual self today as Apple’s pre-split surge has cooled a bit, though Media is being propelled higher after Facebook (FB +3.9%) announced it’s pushing further into the e-commerce world. Otherwise Value isn’t having its best day, apart from Banks which are enjoying the 10-year yield moving back near 0.7%

Supercanes and Asteroids…Neither of these things could move a stock market that’s too big to fail. If asset prices aren’t elevated as per status quo, the weakness is immediately met by Central Bank action, national legislature or Robinhood call buyers of Apple, Amazon, Google, Facebook etc. This morning looked as though we would see a bit of a rotation actually, as Apple turned negative, along with The Nasdaq. However, plasma treatment optimism allowed everybody from Apple and The Nasdaq to The Dow bounce off their lows and hold levels well into the green. Everybody except for Tesla (-1.4%), whose stock is splitting this week, but whose shares are up about 50% since the announcement on August 11th. While the corona treatment optimism has boosted this week’s beginning, the highlight will be the virtual “Jackson Hole” gathering on Thursday and Friday, where the theme this year is “Navigating the Decade Ahead: Implications for Monetary Policy.” Inflation strategy is the name of the game. Also, this week, 2 major storms – Marco and Laura are forming a “supercane” around the Gulf Coast, which, in a year like 2020, could be pivotal.

Helpful Halitosis… Going on a date? Bad breath is a problem… But hoping for new all-time highs on the major US indices? Bad brea(d)th isn’t gonna hold you back. Despite another morning of soggy sentiment pre-market, indices are in the green thanks to who else but Tech / Semis dragging them higher, as the majority of S&P stocks sit in the red (Invesco S&P Equal Weight ETF RSP -0.3%). Pre-opening futures suggested we were in for a jittery Friday, however strong US PMI’s and a sizzling Home Sales number reassured that at least the US economic recovery remains on track. Still, the data allowed the USD has held onto to its gain gains earned (DXY still below resistance at 94) amid some repositioning in the crowded short $ trade, which has weighed on Gold and Oil. It seems nearly every market conversation these days revolves around the question “How much longer can this go on?” and we clearly have not found that answer just yet…

Can’t fight the Fed Tech – The Fed is backing the broader financial system with their balance sheet, and investors are backing the broader market via the tech sector.  Even with the underperformance of tech in Asia last night (TSM was down 6% locally at one point, Samsung -4%), US tech companies are shrugging off any 5G China slowdown concerns (Nikkei article here).  Mega tech was indicated higher pre-open and have not let up since.  Reits actually are the best performers as US Treasury yields move lower (10-yr at 0.64%).  Energy is following Crude (-0.79%) lower, and the sector (XOP) is down 2.6%.  Oil has been relatively stable, but any test of $40 could test the broader S&P strength since the commodity can be seen as an economic demand indicator. 

Another Day, Another Milestone… A day after the S&P finally notched its inevitable new all-time high, US equities are back at again today, with (surprise, surprise) Tech and Media near the top of the leaderboard as Apple (AAPL +0.9%) secures its own landmark achievement by temporarily surpassing the $2T market cap line (in honor the occasion, the chart below presents the latest Apple “stat of the day”).  Retail earnings are once again in focus, with Target (TGT +12%) and Lowe’s (LOW +0.5%) each putting up their own blowout numbers but actually holding onto their trading gains unlike Walmart and Home Depot yesterday. On the other end of the Retail spectrum, a less glamorous showing from TJX (-4.7%) is dragging on fellow apparel/provider Ross Stores (ROST -3.7%) ahead of its numbers tomorrow. Semis are treading water with Nvidia set to report after the close, while Energy sits in the red with Crude coming off following disappointing inventory data. Copper is higher, breaking through resistance at 300.

Doing What They Do Best. You probably guessed “they” as quite a few things here – investors buying, tech rallying, Fed manipulating…correct by all accounts. Tech is leading the charge once again today as investors (according to the BofA survey) have now gone from believing we are “in a recession” to  believing we are in “early cycle.” The power of The Fed is on full display as per the S&P currently on track to set a new all-time closing high. And the power of Apple (+3.5%) is on full display as the Nasdaq rallies yet again. However, retail has had quite a day after Kohl’s got destroyed and WMT warned that lack of stimulus would take a toll on the consumer. Q2 was the height of reopening / recovery but might as well be ancient history at this point. Either way, the S&P and Nasdaq don’t seem to mind.

Et tu Warren? – After a middling week for the techies, they’re back doing what they do best, namely residing in the green. The watch for Apple two trillion persists ($467.70) and the Nasdaq 100 leads the way as it nears a new all-time high (see graph below) and the S&P sits just off a new ATH for the first time since February. We seem to have witnessed our most recent value/cyclical head fake again, banks and travel/leisure names lagging significantly. The money institutions can “thank” Mr. Buffett for their selloff today, news of cutting back his position in a host of names behind the move. Meanwhile, the Oracle seems to have decided, if you can’t beat ‘em, join ‘em. He gave the gold bugs a boost after capitulating and announcing a stake in Barrick Gold. Semis piggybacking Nvidia’s move (+6.9%) after some analysts up their PT ahead of Wed earnings and General Motors (+7.8%) after a broker suggested they could spin off their EV unit.

For the Love of Money – The current stalemate in stimulus is weighing on a few things –like American’s psyche, wallets and sentiment. Apparently, it is not weighing as heavily on the stock market as one might think today, though. After a weak day for European equities and lower futures pre-open, US indices could have folded hard —especially as the Senate will remain closed for any further decision-making until September 8th. However, the value trade has played out thus far as autos, banks and energy have outperformed, while the tech gang has fallen short (Nasdaq weaker). Retail has been of separate interest as a 1.2% rise in retail sales in July has helped Macy’s (+6%), Kohl’s (+4%) and Nordstrom (JWN +5%) get a much needed boost. One other name of note – DraftKings (-7%), the online gambling co that has suffered from the cancellation of pro and college sports leagues (smh). That said, if you want to see Redburn’s deep dive on the value of these names, please ask!

Going for it – After failing to get through the magic mark of 3386.15, the S&P is giving it another shot today.  As has been the trend, it is the mega tech that is helping with this push.  And to punctuate that impact, Apple (+2.1%) is just 1% away from hitting a $2trln market cap.  But even with the mega tech strength, the second best performing sector is Retail (XRT +55bps).  Looking at the constituents, it’s easy to see that the Covid beneficiaries are driving its performance (Overstock, Etsy, Wayfair, Stamps).  Banks once again are underperforming, even as Treasury yields are moving higher again (see below).

To Be or Not to Be – A genuine rotation that is, seems to be the question on everyone’s mind. A 3-day losing streak for big tech accompanied by a curious slide late yesterday furthered the thought but the 2020 darlings responded with a resounding NOT SO FAST today. Yesterday’s move did highlight the crowded nature of a # of trades and what we can expect if/when investors become inclined to unwind. Continued talk of a stalemate in Congress and postponing of college football (a clearer sign the pandemic is far from over) will test this rotation as it remains in its nascent stages. The key level to watch here is the S&P Value ETF June relative high. It remains a bit away from current levels and its only a short term level really; net-net, we’ll need much more confirmation before the rotation becomes a reality.