Every Dow Has Its Day… New week, same theme and unfortunately for the S&P that likely means a 5th consecutive down day for the first time since the turbulent times of Feb 2020… Reflation remains in focus, and though Treasury yields are taking a bit of a breather, more positive news on the vaccine front has equities playing into the theme with a healthy display of Rotation (VLUE +40bps, MTUM -2.2%). The resulting weakness in the seemingly perennial Tech winners and strength in cyclical reopening names has made for a rare sight among the blue chip indices: the Nasdaq is (was) down -1.5% and the DJIA is green at the same time for just the 5th time in the last 10 years! Don’t count the S&P out from snapping its losing streak just yet either; already we’ve seen the buy-the-dip mentality from last week’s trading carry over to today, with the index comfortably off its -82bps low shortly after the open. Yield may be stealing a lot of attention, but old habits die hard when it comes to equities love…

Long Strange Trip … February 19th 2020: the S&P and Nasdaq both hit an all-time high as China signals more stimulus for its economy reeling from lockdowns, and investors regain confidence the fallout from the coronavirus will be relatively contained… Well Happy Anniversary everyone, what a long strange trip it’s been! Despite all that’s happened in the interim, the first bullet from that day’s View at Two: “Resilient or Delusional?” wouldn’t seem too out of place today. The latest obstacle for stocks of course is rising bond yields as reflation trade picks up steam, and while Treasuries have continued to sell-off today, US equities appeared ready to come to terms with that to end the week on a positive note. That’s looking less certain now; as the 10-yr yield has continued on to reach as high as 1.36%, the S&P has faded from its high of +42bps just before the EU close to trade in the red (just now back to unchanged). Regardless of where indices finish, the week seems destined to end with the same display of FOMO vs bubble fear uncertainty that’s characterized the dip-buying of the last few days…

Two Steps Forward… That’s largely been the direction the market has taken but a few of the bulwarks of this move higher have been dented this week. As such, equities are in retreat once again today, with both the reflation/value-cyclical names and growth/WFH names taking hits in equal measure. Instead it’s 4 defensive sectors that have thus far traded in the red year to date that are leading today; good for them. Banks and energy are in retreat; not coincidentally those two are the biggest gainers of the week but word of another mutant strain, this time out of Finland, and it provided cover for anyone looking to trim. The biggest loser of the day however is the food retail space, Wal-Mart being a drag after a bottom-line miss and guidance on a sizable spending program. Once again the market has revealed its resilience though, buying the dip/blip as the day progressed and shows investors remain at the ready. And while money does continue flowing into VIX ETFs to serve as a hedge, the recent BAML survey reveals PMs are taking higher than normal risk at an all-time high clip.

Hot & Cold… While a chunk of the US continues to grapple with freezing cold temperatures, it’s no secret that the latest market buzz is all about the reflation trade heating up. Equities were basically frozen in their tracks yesterday as the 10-year yield rocket higher, but have broken free today, only to shiver at the thought of a further sell-off in Treasuries and higher inflation on the horizon. Of course data this morning set the tone: a whopping +5.3% MoM print from Jan Retail Sales made it seem like Christmas came in January as consumers got their second wave of stimulus checks, and higher than est PPI data finally delivered the inflationary evidence that’s been needed to back up recently warming expectations. Industrial Production also came in with a healthy beat for good measure just to drive home that Manufacturing is humming along as well. Stocks are paring some of their losses as yields have come of their data-induced highs (10-year almost grazing 1.33% at one point), but clearly with more stimulus on the way and the Fed “not even thinking about” intervening, it’s likely the Treasury trend will continue. The question will be where the money coming out of the bond market finds its new home – how much further can the equities bubble stretch, especially if the USD continues to find new life? (inverted DXY vs SPX below)

Bull Market Reactions… On Friday, the S&P traded at 22.52x projected earnings over the next 12 months, above the 5-year average of 17.96. Some might consider that a sign of frothiness. Yet, the Dow is on pace for another record close as investors only see the colors of stimulus, strong earnings (80% beat rate thus far) and vaccine rollout. It’s now being called a K-shaped recovery, where certain areas of the market are doing well, and others are getting hammered (see: global bonds, which are seeing the worst start to a year since 2013). Today’s performance has been muted, at best, with the S&P hovering around flat and the Nasdaq -40bps, but lingering enthusiasm is credited to commentary from Fed Pres Bullard (conditions in the US are “generally good”) and upbeat manufacturing data. Further, freezing temps across the US have injected new momentum into Energy, with natural gas futures +4%. Banks are also top of the charts. Some may give credit to less-dire Fed stress tests that have given the likes of JPM and BAML at least 2% upside. But also, there is a wave of euphoria with regards to imminent re-opening that has rendered certain sectors (illogically?) exuberant. The cruise lines for example, are up over 6% each so far today (Carnival +8%, RCL +7% and Norwegian Cruise + 6%). This, despite Norwegian extending suspension of its Voyage for another month. What’s one more month in a global pandemic??? Finally, of note today is the dollar, which has cut some losses, bouncing off 3-week lows. Impressive, until you notice Bitcoin broke $50k. More on that below.

Whoop Whoop… With Presidents’ Day on Monday (one of the best fake holidays of the year), the few people that do report to the floor of the NYSE these days are getting ready to ring in the 3-day weekend with the traditional 3:33pm “WHOOP.” Equities don’t seem to be sharing the same enthusiasm, rather they seem to be mailing it in to cap off of an already boring (or is it?) stretch the last few days. With the SPX bouncing around unchanged, Transports are leading the way towed by FedEx (FDX +3.0%) gaining after it delivered a pleasing divi declaration (still just below its 50-DMA though). Banks and Energy are among the outperformers thanks to yields going better along with oil (of course the two linked through all the recent inflation chatter). Illumina (ILMN +13%)’s well-received reporting has helped Pharma. Somewhat surprisingly Disney’s (DIS -1.9%) streaming subscriber beat and resilient parks performance hasn’t stacked up the recent bullish expectations, thus Media is struggling despite another day of Twitter gains (TWTR +5.6%). Newell Brands’ (NWL -7.9%) lackluster guidance is weighing on the Apparel space.

TREADING WATER (OR THIN ICE?) – There is no reason to hit any alarm bells and the main components of the bull market remain in place. Stimulus is coming, the Fed is at the ready (today’s soft jobless claims figure highlighting his comments about the labor market being a long way from full recovery) and Covid news is trending in the right direction. Yet equities seem stuck in neutral after snapping a 6-day winning streak. Energy has been on a tear of late but its serving as the biggest drag today, the IEA cutting global consumption forecasts providing an easy enough reason to take some money off the table. As such, value/cyclicals underperforming today. Not the case for the growth space although its largely being led by one group in particular. When in doubt, the semis are stout, and they’re ripping again today as they have been for much of February. Talk of chip shortages barely caused a ripple but it was enough for the Biden administration to say they’re taking aggressive measures to address it. (What, no tweet Joe?). Recent all-time highs in many well-known indices keep sentiment upbeat, but as discussed yesterday, the integrity of the Russell 2k has been somewhat compromised thanks to the “meme” stocks. Which is why breadth may be a better indicator. In which case, the highest ever recorded % of stocks above long term averages would imply markets remain in good stead.

Can’t Win Em All … It seemed this morning the message was “new day, same story” for US stocks as futures sat comfortably in the green at ATHs with little changed overnight in the stimulus/vaccine narrative. Even a disappointingly cool inflation reading from CPI data premarket, which dinged bond yields, did little to rock the equities boat. But despite what’s it seemed recently, you can’t win em all, and indices turned lower within the first hour without little indication why except for the move being led by the weighty Big Tech names (which of course have could afford a little more profit taking with NYFANG+ +11% to start Feb). Since then action has been a little drifty, with the release of Powell’s speech giving investors little new to react to. Sector-wise Energy is the clear leader, boosted as Crude reversed its fortune on bullish inventory data to make a new 1-year high. Banks are also hanging tough to keep up the day’s Value tilt, despite the weakness in yields (only back to last week’s levels though really). To the downside it’s Autos where GM (-2.9%) signaled more caution on the semiconductor shortage and Tesla (TSLA -4.7%) is  giving back its Bitcoin; Tech is seeing additional pressure from Cisco’s (CSCO -4.0%) disappointing update last night. Other notable earnings include Twitter (TWTR +8.7%) flying to a 7-year high on encouraging digital ad numbers. Whether the SPX gets it new high remains to be seen but regardless the market seems pretty chilled either way as earlier this morning the VIX momentarily dropped below 20 for the first time in almost a year.

On the Road Again… The road to all-time highs that is. US indices are green again for the third time this week, albeit it not as convincingly as Monday/Tuesday, but the action still serves to put last week’s frenzy even farther in the rearview mirror. It seems inevitable we’ll retest the highs, but once we get there we’ll be faced with the familiar question of whether Rotation / Reflation has more short-term juice left or whether Growth/Tech will have to lead the way as we impatiently wait for more progress on the vaccine rollout and economic recovery. A look at the sector table today provides no clear answer: Energy is the best performer as crude prices responds to renewed commitments from OPEC+ to clear pandemic surpluses, and Banks are again following bond yields higher as stimulus/inflation expectations heat up. On the other hand, Media is up sharply thanks to Alphabet (GOOGL +9.0%) making an earnings beat look as easy as A-B-C, though if Spotify (SPOT -6.7%) were in the S&P that might look a little different (our analyst cutting ests materially after earnings). Retail could have followed seeing as Amazon (AMZN u/c) also blew the doors off consensus by almost doubling EPS expectations, but investors are mulling over Jeff Bezos’s decision to transition out of the CEO role. To the downside, Semis are taking a breather from their breathless rebound, and coincidentally Autos are in the red as GM (+2.8%) and Ford (F +2.9%) admit further trouble with semiconductor shortages; the two carmakers pared intraday gains, however it’s actually a pullback from the heavily weighted Tesla (-1.8%) that has the sector in reverse. Disappointing reports from Amgen (-2.9%) and Biogen (BIIB -5.0%) have Pharma well in negative territory despite better numbers from AbbVie (ABBV +2.9%).

6 More Weeks? If Only! It’s that time of year when that pesky rodent comes out of the ground and predicts another month and a half of winter. As if we care about that right now. To many it’s been Groundhog Day every day for nearly a year now and news headlines suggest we’re well away from being out of the woods. TWO MASKS?! But much like Punxsutawney Phil when he sticks his head out, cooler heads are prevailing. Our pharma team assuaged these concerns with data and it seems the Street is feeling similar, the reopening / reflation / rotation trades performing strongly today with 10-year yields resuming their climb higher. Equities are on track for their highest 2-day gain since November and the S&P has its sights set on a new ATH, about 50bps away. In fact, no significant damage was done at the index level and given the spike in the VIX we saw last week, the fact it didn’t result in a bigger drawdown was also encouraging. Earnings have again come in relatively well (UPS +1% giving transports a boost) and crude above $55 for the first time in more than a year. But do note – the makeup of the indices is largely tech and an uptick in oil could lead to inflation potential, hurting the growth prospects of those growth names. Second is the move higher in the USD – it has long been a tailwind for stocks but it has been on an upward trajectory since the beginning of the year. And the market is already VERY short the USD; and we know how that can go. Speaking of…