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%.  

Blame it on China… Many are pointing to recent escalation in the ongoing US-China saga for the weaker sentiment today (things are indeed heating up), but all things considered the S&P is still up +3.2% for the week, making this more of a pause on light volumes than a sign of serious concern (of course with China beginning their annual National People’s Congress tonight, that’s subject to change). A long weekend ahead sets up tomorrow’s trading as an barometer for how confident investors are feeling in their positioning… or perhaps a less dramatic, drifty day…

Eyes on the Prize… Even before the afternoon’s Moderna snafu, investors’ optimism seemed to fizzle yesterday as the S&P stalled and Monday’s rotation to Value came to a stop. Well perhaps all the nail-biting over Phase 1 clinical trial sample sizes (and the subsequent selloff) was necessary to get investors to re-focus on the reopening / Fed ammo narrative that was the original catalyst to start the week. That’s been to the benefit today of hot & cold Value/Cyclical sectors like Banks, Autos, Energy and Small caps that are getting another taste of outperformance. Of course it goes without saying there’s a long way to go before those moves can be thought of as more than just reversion to the mean…

Pushing for Positive… On the surface it appears US equities are attempting a repeat of yesterday, trying to overcome morning weakness to break back into the green. But under the surface today’s action looks a little different: yesterday it was beaten-up Value sectors like Banks and Energy that sparked the intraday reversal, but the US 10-year barely budging demonstrated it wasn’t a risk-on move (no money flowing from the safety of bonds into beaten-down equities.) Today’s sector breakdown presents a muddled picture as well: yes the 10-year yield is pushing higher (after earlier dropping below 0.6%) and small caps are higher (IWM +1.5%) but defensives spaces like Food/Bev and momentum names (FDN +1.5%) are among the outperformers too, while Banks are left behind and Tech is dragged by potential China backlash.  

No Breather Needed… After US stocks powered into the weekend, today’s slow start was easily dismissed as the market taking a “breather.” But apparently FOMO and FANG need no rest, as the usual suspects of tech led the Nasdaq into the green (FDN +1.1% new all-time highs) and the S&P and small caps (IWM +0.1%) have now turned positive as well. Clearly the re-opening optimism hasn’t played out yet, with CNBC making much ado about Shanghai Disneyland opening its gates to a limited crowd. However, if countries like China and South Korea that are employing contact-tracing and other arguably invasive methods are still having trouble containing second wave infections, how will the USA fare against the same challenges?   

Midweek Mixed Bag… The S&P continues to crawl along nearly flat on the day as investors remain in a wait-and-see mode with regards to how re-opening plans will pan out. The sector tables also present a muddled picture with big Tech once again leading the way but trailed closely by more-cyclically focused Autos (thanks to GM +4.8% on earnings). The laggards are also a blend of defensives / cyclicals with Utilities, Banks, and Energy all underperforming.

Don’t Make it a Habit… The S&P is trying to avoid its first 3-day losing streak since early March but there hasn’t been much enthusiasm to start the week. The tone is risk-off as Value names take another beating, but quiet volumes and a less “sexy” slate of earnings indicate the market is in a bit of a no-man’s land, unsure where to get next after surviving the initial plunge and subsequent furious rebound.

Take a Break… We get arguably the best set of Q1 earnings so far this season and this is how the market reacts?? Profit taking and a bit of month-end rebalancing seem to be the favorite culprits behind today’s well-deserved step back: the S&P is still on track for its best month since 1987, after all. Along with the pause has come a reversal in the underlying trends that carried indices higher through the week: Value sectors like Banks / Energy / Autos are taking a back seat while  Momentum plays are back on top, and Small Caps are cooling off (IWM -3.5%) after near-record streak of outperformance the last few sessions.

Remember When… the S&P didn’t close up or down more than 1% for 70 consecutive sessions between October and January? Feels like ancient history, but even still it’s uncanny that despite the SPX trading up as much as +1.5% today, it still feels like a “boring” start to a busy week for US markets. Cyclicals / Value are leading the way as Tech takes a relative breather, and Small Caps are enjoying a much needed outperformance day (IWM +4.4%). Still certain measures of Growth vs. Value show that on a technical basis, Growth’s relative outperformance doesn’t appear to be ending anytime soon (JPM chart below)

On Your Toes… If you wanted to know how much the market is pricing in the success of Remdesivir, you got your answer. A headline from the FT claiming the drug “flopped” in its first trial in China immediately sent Gilead (GILD -5.7%) plunging to a volatility halt and sank the S&P into the red. However stocks quickly rebounded as details emerged that the trial was actually halted due to “low patient enrollment”, and as Gilead assured the data didn’t show any meaningful conclusions. Oh, and to make things more confusing, the data wasn’t supposed to be released in the first place, and was only picked up by news outlets after the WHO mistakenly posted it to its website. The S&P now once again heading towards negative territory goes to show just much the investors have riding on an effective treatment