The View from 5th Avenue

Going Streaking… A good ole’ fashioned risk-on session has the S&P knocking on the door of a new all-time high, as well as its first string of 8 consecutive green days for just the fifth time in 10 years. Rotation is again the word of the day, with Cyclicals/Value powering higher and Tech/Defensives making up the bottom of the sector table on word of Russia’s “approved” Covid vaccine. Some signs of caution are showing through the early morning exuberance however, as some of the highest-flying Travel & Leisure names have been reined in and Software/Media have recovered to help the Nasdaq muscle its way back towards positive territory as it tries to avoid its first 3-day losing streak since March; perhaps some hesitation is warranted given the questionable nature of the vaccine news and the fact that Trump’s proposed capital gains taxes remain up in the air. Still, the 10-year Treasury yield has remained at multi-day highs, receiving an extra boost from warmer than expected PPI data. Gold is unable to shake its weakness, with profit taking instinct overshadowing the early signs of inflation.  

Summer Snooze… A busy weekend of news but a somewhat sleepy response from the US equities feels about on par for mid-August, especially as earnings wind down. Futures hanging in the green this morning despite the continued simmering of US/China tensions shows the saga remains in the backseat relative to the virus recovery story, but Tech continues to show signs of fatigue just as its carried the S&P to within a stone’s throw of its all-time high. Accordingly Software, Media, and Semis have been among the worst performing sectors throughout the morning, and are responsible for the S&P’s brief foray into the red (Nasdaq still lagging there). That’s left investors to once again rummage around the value/cyclical bin with Transports, Industrials, and Banks all outperforming along with Energy which is getting a boost from Crude strength after Saudi Aramco presented an upbeat picture of improving demand. Small-caps’ mojo has also rolled over from last week’s performance that saw the Russell 2000 gain +6% (IWM +1.2% today) and clear the crucial June high. Still, perspective is important, and despite the signs of rotation over the last 2-3 weeks it’s too early to say the longer trend of growth/Tech outperforming the S&P while small caps/Value underperform has seen any meaningful change. See the chart of Nasdaq 100 and Russell 2000 Value Index both relative to S&P below:

Surprise Spoiled… President Trump’s “prediction” came true, but despite a “big” July NFP number this morning, US indices find themselves trading modestly in the red into the afternoon. Perhaps elevated expectations cued up by the improved ADP payrolls yesterday did take some of the shine off NFPs, but speculation that the improving jobs picture might further solid the Congressional stalemate of further unemployment relief (the two sides are reportedly remain far apart amid on meeting ongoing now) has also created reason for pause. Trump’s latest TikTok/TenCent targeting has US-China tensions in the mix as well, though the S&P clinging to most of its over +2% weekly gain suggests the back-and-forth is still a clear second fiddle to the virus/recovery narrative. Transports top the sector table with UPS (+7.3%) and Fedex (FDX +6.0%) leading the charge on word they are planning to raise holiday shipping fees as deliveries surge; otherwise Banks / Insurance are doing a bit of catching up, while Tech/Semis are taking a well-deserved breather, while Gold, Oil and Copper all give back some recent gains. Of course should a stimulus deal announcement come through before 4pm, things could be looking a lot rosier heading into the weekend…

Cautious, even if green – Heading into Friday, traders are treading carefully after four days of gains in equites.  Congress is still working on their stimulus plan, plus the Nonfarm Payroll data will be reported. Yes POTUS has pointed to a big number, and today’s jobless claims were better than expected (1186k vse 1400k), but the ADP miss Wednesday is still a reminder that this recovery is a work in progress.  The safety trade in Tech (led by the mega caps) is pushing that sector to the best performer list, and also pushing Facebook (FB +5.9%) to a new ATH.  Transportation stocks are also doing well, led by Kansas City Southern (+5%) as it appears a deal for them by Blackstone is getting closer.  On the losing end is Healthcare, getting hit from Becton Dickinson (-8.7%), ResMed (-12.5%) and Dentsply (-7.6%), all of which reported earnings. US treasuries are also ticking higher, with the yield touching 0.5019% for a brief moment.  Investors playing it safe into a potentially volatile Friday.

Forward March… US stocks are on a roll, with expectations that Congress will eventually strike a deal on further unemployment benefits aiding the S&P in its quest to go 4/4 on green days dating back to last Thursday’s mega-cap earnings dump. Somewhat of a different flavor to the rally today with Materials, Cap Goods, and Banks outperforming while Tech/Semis takes more of a backseat (though DIS +8.8% after its earnings has worked its magic on the Media space). Unsurprising given value has been the usual victor on vaccine news flow days (more on that below), but that hasn’t stopped the Nasdaq from eyeing a new ATH as well. The optimistic tone has the 10-year Treasury yield continuing to edge higher after notching multi-month lows, also buoyed by word the US Treasury plans to increase auction sizes for longer-dated bonds. Oil and Copper are also nudging higher, while Gold continues to soar after cracking 2k yesterday.

WOOF WOOF: US indices greeted the dog days of summer with a new 5-month high yday, but today’s less enthusiastic open makes it clear this isn’t going to be a cakewalk for stocks No doubt the recovery’s come a long way, but the stubborn growth of virus cases is stalling further progress (just ask airlines, restaurants, etc…) and more co’s every day seem to flag coming job cuts (BKNG the latest this morn). COVID cases seem to have come off their peak however (for now), factory orders followed up yesterday’s good PMI # with a solid figure itself and June home prices had its largest monthly gain in 7 years. Cyclicals are having a day (banks notwithstanding because, why would ya) with travel names better on talk of improving trends. REITs are taking the Facebook-Vornado news well and Ford is going better on a CEO change. Despite some singular moves, the overall indices are in a holding pattern, albeit slightly in positive territory.

National Watermelon Day and Other Essentials….Despite the notable drop in volumes to start the hottest month of the year, the FANG work horses have been at it again today, pushing the Nasdaq to a fresh record (chart below). However, it’s not only Apple (at an all-time high) and Microsoft (+4.8%) doing work today. A handful of other software and tech helpers have stepped in to take a turn with the baton. Qualcomm (+3.7%), Zoom (+6%), Upwork (+9.3%) and Shopify (+6.2%) are all adding impact thanks to a handful of decent earnings and a friendly upgrade. Even small-caps have shown some life (chart below). However, it won’t take much this week to roil a market that remains at levels that feel out of touch with reality. Investors will be watching Booking, Hyatt, Sabre and Norwegian’s latest trends when they report later this week (as well as Marriott and RCL next week). Further, with jobless claims remaining high and job openings stalled, NFP’s will be hard pressed to maintain the narrative the economy is improving. This is not to mention the risk of renewed lockdowns, political posturing and the potential loss of TikTok (cue millions of 12-15 and 40-50 year olds marching on Washington in a coordinated dance routine).

When’s the Bell Again?…  An uneasy slide into the weekend for US stocks, as even a monstrous earnings showing from the four FANG horseman of the Tech-pocalypse (FB +7.5%, AMZN +3.7%, AAPL +7.2%, GOOGL -5.2%) hasn’t been enough to stem the nervousness that began to creep in yesterday. With Congress unable to reach a deal on unemployment relief on the day current benefits are set to expire, Florida posting a fourth consecutive day of record virus deaths, and jobless claims suggesting the unemployment rebound may be slowing, there’s plenty to have investors looking to take a little risk off on a Friday. The sector table is a tale of two economies, with Tech, Retail, and Media all outperforming thanks to you know who, and pretty much everything else in the red with Autos / Transports / Energy in the basement. For all the talk of S&P concentration in FAAMG, it seems the mega-caps can’t save the day if everything else is pulling the other direction….

LOUD NOISES! Couldn’t we spread things out a bit? FOMC and Tech CEOs on the BBQ yesterday (oh they sure got grilled! Think they slept ok) that led into a potpourri of earnings last night and this morning, with a delectable dessert awaiting post the bell today with Apple, Alphabet, Facebook and Amazon set to report. (A group that testifies together, reports together?) Net-net, there’s a lot going on and while futures and action in Europe suggested today would be an ugly one, that’s not the case as things currently stand. Powell held the line while the earnings narrative has stayed consistent. That being an average EPS beat rate of around 15% with reports of improvement, although some talk of plateauing in July could be cause for concern. Semis specifically strong (making ATHs), Lam Research and Qualcomm posting reports last night that read well, especially the latter’s unexpected licensing deal with Huawei. People haven’t been going to stores that much and so they need stuff delivered – UPS followed FedEx’s lead last month with blowout figures.

Drumroll Please…  A special “late” edition of the View at Two as the FOMC just released their policy decision. After all the anticipation, the statement came in pretty much as expected: the 0-0.25% benchmark rate was of course maintained (and will stay that way until the committee is confident in the economy has recovered) and the Fed will continue to increase its asset holdings at the current pace. Overall a dovish statement, with plenty of caution around the virus determining the course of recovery and acknowledging economic activity / unemployment are well below Jan 1 levels. The announcement hasn’t garnered much market response at all: stocks remain near the highs of the day, and Treasury yields and gold are all little changed from earlier levels though the dollar is slipping a bit – perhaps the upcoming press conference will spur more reaction, but for now the statement is being taken as “inline”