The View from 5th Avenue

Rough way to head into the weekend – After yesterday’s gain into the close left traders scratching their heads for a reason, markets today are actually focusing on the negative headlines that seem to be all over the place.  Virus spikes have forced the reopen thesis to be dialed back (Texas and Florida have slightly rolled back some policies), Nike’s (NKE -6.1%) earnings surprised most, and the Fed asserted more control over Banks and their capital.  Lastly, a member of the FANG gang (FB -7.3%) is seeing customers suspend ad purchases on their platform on misconduct policing.  All S&P sectors are in the Red, and the index has tested its 200 day moving average (3020) three times today. With equities trading lower, safe assets like UST’s and gold are outperforming.  Later in the session, the Russell rebalance occurs on the close, adding to the uptick in volatility. 

Composed – After yesterday’s profit taking knocked stocks lower across the board, equities have been battling the unchanged line all day. The themes driving the narrative are still there (both bull and bear), but for now its only the virus case increases in Texas and Arizona (California data due later) that are somewhat new. At 3058, the S&P is closer to the low end of its 3000-3150 trading range, and the spike in cases does not seem to be enough to force traders to de-risk. Banks (see below) are the outperformers, while Homebuilders are lagging after KB Homes (KBH -12%) provided weaker than expected order data. Homebuilders have been a beneficiary of the reopen trade, and that sector is +45% QTD.

Unease on Display… After yesterday’s seemingly optimistic approach to rising virus cases fizzled into the close, the real sense of worry underlying the market is on display front and center today. The latest virus headlines have delivered a fresh dose of reality too heavy to shrug off, with the situation continuing to worsen in Texas / Florida / California and NY / NJ / CT completing the karmic circle by announcing a mandatory quarantine for visitors from higher risk states. Indices attempted to rally off the low midday but are on their way back down again as sellers continue to puke out Value / reopening names (JETS -5.9%, RCL -12%, BKX -4.7%) and with FANG opting not to ride to the rescue today.

Wrong Week (Months) to Quit Sniffing Glue…With that little political misunderstanding out of the way (See: Peter Navarro), risk-assets resumed their price appreciation today, balancing hopes of continued reopening on the economic trajectory, with  new home sales surge (but  disappointing existing home sales) and concerns over new US COVID-19 case growth. Though it is worth noting that market participants seem to only care if hospitalization rates actually increase. Nevertheless, equities are higher yet again led by Cyclical/High Beta/ Value names. However, one place to keep watch? USD. The easing is pleasing to many, but not all.. Clearly there will always be second-derivatives of any USD move, some market friendly, some less so. The culmination of all of these things TBD by next week’s month and quarter end. Duh duh duhhhh….

Summer is Officially Here… and it’s trading like it too. Expiry is in the rearview mirror, meaning equities should be free to trade with fewer constraints, but once again a lack of new news has resulted in a lack of conviction that saw the S&P get off to a slow start the week. Indices are now attempting to push higher midday on back of the tech mega-caps: Apple (AAPL +2.2%) is leading the charge as its Worldwide Developers Conference kicks off… given Apple’s store re-closing announcement on Friday, it’s a fitting illustration of investors trying to shrug off 2nd wave fears in the name of sticking with what’s worked

Witching for the Weekend… It’s been a busy week of headlines but none have really packed enough punch to point to whether stocks’ next big move will be up or down (or spark a pickup in volumes the last few days). Regardless quad-witching is the story of today, with quarterly expiry meaning it’s not worth reading too much into today’s trading action as a gauge of sentiment. Still, pesky 2nd wave fears continue to pop up, with word Apple (AAPL -1.0%) will be re-closing some stores in states with growing virus cases sending indices into the red within the last 2 hours.

Flip a coin – Markets are now at an interesting intersection.  They have bounced nicely looking forward, but it will take time for the economy to heal.  Yes, indicators are showing that the reopening is helping, but at some point the low hanging fruit will be harder to reach.  Volumes have been trending lower recently (yesterday was down 23% versus 5 day average), and that can be an indicator that investors are unsure what to do next. The S&P 500 is trading at 3100, Nasdaq is close to new highs, and the Fab Five have three companies with market caps near $1.5 trillion.  How long can Buy the Dip hold?

A Familiar Routine… When World War 3 is literally trending on Twitter and futures are in the green, you know stocks are back in their groove of “focus on the good, ignore the bad.” But while reopening remains apple of the market’s eye, signs of progress (NYC Phase 2 coming Monday!) don’t seem to be eliciting as much exuberance as they did previously. The scars of last Thursday’s plunge are visible: the VIX and gold remain elevated, USD has stopped going down, and the S&P is back to counting on FANG mega-caps to drag it higher today (AAPL new ATH). So while the narrative is the same, the grind higher feels different…

“I’ma Need Some Whiskey Glasses…Cause I don’t wanna see the truth…” That may be because the truth is being completely warped by the quite visible hand of the Powell print. And the Trump Administration (a cool $1 trillion anyone?!). And economic data, which seems to be about as misleading as they come. How is it possible that retail sales are up so much M/M?! Recall they came from a very low base — down 16% in April meant a snapback was not expected and unsurprising. Also, people are possibly now spending their government signed checks, which could be a one-time event. However, skepticism is running rampant in regards to what is formerly known as “the market,” which is leaving fund managers in the latest BofA survey asking how far is too far. 78% of the managers surveyed see the stock market as “overvalued.”

Defying Gravity…The markets are “through accepting limits cause someone says they’re so…(h/t Idina Menzel).” Despite second wave corona concerns peppering headlines over the weekend, US markets moseyed their way back into positive/neutral territory over the course of this quiet (volume-wise) Monday. The move was already heading from bottom left to top right before Citigroup’s U.S. economic surprise index was revealed to have surged to the highest level since 2003 inception, and before Reuters reported the U.S. will allow American companies to work with Huawei to develop standards, despite its blacklisting. Not to mention the 2pm announcement that The Fed’s going to buy a broad based portfolio of US corporate debt. That’ll do. The leaderboard includes tech and consumer discretionary, as well as oil, which reversed early losses. This week there are an array of potential wrenches to be thrown into the mix, ranging from retail sales to quad witching, but the way things have been going it seems fighting the tape (or The Fed) is in not in anyone’s best interest.