Not a Manic Monday – Markets are starting the week in a cautious mood as the earnings calendar heats up, while getting fresh reading on eco data at the end of the week (Existing Home Sales and Markit PMI).  Semis are lagging after the UK said they will intervene on the ARM/ Nvidia  (NVDA -3.3%) for national security reasons.  But the sector will see earnings from Lam Research (-4.8%) and ASML (-3.22%) as well, so traders are taking the opportunity to adjust their portfolios.  The S&P is trying to bounce here at the 4150 level though, and a couple sectors are trying to turn green, but there are still only 124 stocks trading higher versus 376 lower. 

Give me some base – After a week where the old FANG gang pushed indexes to new highs, the reflation themed gang is taking over.  Banks (+1.1%) are benefitting from the start of its earnings season (see below), and Oil (Crude +5.1%) saw declines in both the API and EIA data, and also had the IEA raise their 2021 demand forecast.  Since value and growth both outperform at the same time, Tech is in the losers column weighed down by the FANG (-1.22%). The big name of the day however belongs to Coinbase.  The company did a direct listing on Nasdaq, opened at $381, and is currently trading at $378, putting the market cap at $75bn

“I Don’t Care if Mondays Blue” – The late day melt-up we saw Friday afternoon didn’t translate to today but it’s recovering from the lows earlier in the day, as a bit of ‘what comes next’ grips the market currently. A busy week ahead has volumes mimicking the anemic levels we got last week. Tomorrow brings PPI sibling CPI along with Chinese import/export data and most importantly, the banks kick off earnings season and a lack of guidance just won’t do at this stage. Sadly, today is largely uneventful as a result. In a reminder COVID and its after-effects will be with us for years to come, biological testing firm Luminex got bought out for $1.8bn and Microsoft made an even bigger splash, taking out AI firm Nuance for $19.7bn. UBER a big mover on the day after gross bookings last month were the highest in a year. In a bit of a contradiction, their delivery service was up more than 150% from a year earlier, highlighting the reopening trade vs new normal remains a tenuous one (see below). Meanwhile as a confab amongst Semiconductor CEOs is ongoing, Nvidia dropped a midday bombshell, announcing its doing to directly challenge Intel’ls central processing units. Broadly speaking, large-cap (and more specifically tech/retail) has served as a safety net and been winning out of late. On a down day for that crew, the small and mid-cap names along with those in the reflation space are doing little to minimize the lost ground they’ve seen over the last month. Certainly something to keep an eye on as earnings roll in; has the reflation trade run its course?

“Hello Friends”… Jim Nantz’s familiar greeting, the Masters Tournament theme song, birds chirping in the background: the relaxing sounds of a nice Sunday afternoon golf nap are upon us. Markets have continued on in a similarly sleepy fashion again today in what’s been an overall quiet week, but have US indices continued to inch higher as some comments from Powell forced traders to take one eye of the leaderboard momentarily.

Taking in the View –  Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it. Amen Ferris – it seems the market is doing just that, what with the breathtaking views at these elevated levels. It’s a funny business we’re in; the moment something doesn’t follow a familiar track, the cynics in us come out. Why are volumes so low? Why didn’t yields jump after the strong economic data we saw bookending the weekend? (They’ve already moved substantially). Instead the market seems to be in (re)assess mode. The “headlines” of the day haven’t exactly lent themselves to a broader move higher, with talk of increases in the corporate tax rate and Dallas Fed President saying inflation could rise “well in excess” of 2.5% (before settling back). Tech is helping set the pace generally, while L Brands gives retail a lift after receiving a broker upgrade. One of the poster children for the market was Carnival of course and what better to symbolize the hope everyone is feeling in regards to reopeninig. The narrative they put out this morning was very strong on booking trends, adding to the positive theme for the leisure and hospitality space.

Hit by a Semi – After the strong performance yesterday by the broader indexes, stocks today had been in a holding pattern, with the S&P 500 trying to add.  The 10-yr UST has moved lower (1.66%), and sectors that are yield sensitive performed accordingly (Homebuilders leading (+71bps), Banks lagging (-26bps).  But Applied Materials (-3%) made things interesting this afternoon after providing some long term guidance at their investor day.  Seeing FY eps of 8.50 on $26.7bn in revenue, the stock quickly traded lower, bringing the broader sector with it.  AMAT and the SOX are trying to rebound post comments, giving traders something to watch when overall market volumes are down about 13% versus the 20 day average.  Perhaps the quick cautiousness from investors should not be a surprise given overall equity positioning, but Semicaps should be able to weather some of that since TSMC’s $100bn capex announcement should provide a tail wind.

Risk in Reverse – The calendar is still a few days away from quarter end, but markets today are seeing some risk unwind of the popular positional trades.  Yields have moved lower and the 10-year yield is sitting at 1.649%, the dollar has strengthened (watch the Aussie 100 day at 0.7610), the Russell is lower by another 2.3% (both growth and value down), Mega tech is higher (thanks to its correlation to yields).  Utilities are the best performing (+1.4%) followed by Staples (+75bps), while Metals (-4.3%) are worst.  That last sector is down on talk that China may release some commodity reserves to offset price strength.  Also in commodities, Oil is -6.5% and just fell through its 50 day moving average (58.45), and next support is at $55.  Today’s risk off is far different that the one seen last March, when the S&P 500 closed at 2237.  Seems pertinent that Powell is testifying with Yellen on the anniversary of releasing mega monetary support. 

Market Madness… The NCAA College Basketball tourney is in full-on “madness” mode, with a few heart (wallet) breaking upsets already on record. But, the markets are also suffering some upsets of its own. Having tread water overnight, the US cash market open sparked a major rotation into big-tech (growth) and out of value (Small Caps), as rising COVID cases dampened some of the reopening enthusiasm (looking at you, NJ). The modest drop in Treasury yields (10Y down a few bps) apparently triggered the resurgence, erasing Small Caps recent outperformance, while the Nasdaq surged 1.5%. The Dow is faring slightly better than small caps, up 30bps, but cyclicals like Boeing (-1.2%), Goldman (-1.5%)  and JPM (-2.5%) are holding the blue chip index to modest gains. The S&P is 0.85% higher, but its sector split is a good indication of the day’s progress. Most of the sectors are higher, but the leaders are the big gun mega-cap tech names with XLK Tech Select in the lead (AMAT +5.3%, KLAC +4.4%), followed by Communication Services and Consumer Discretionary. Financials and Energy are at the bottom. Kansas City Southern (+12%) is the biggest S&P gainer after it agreed to be bought by Canadian Pacific. In terms of data, existing home sales rebounded in January, but were expected to slide in February as interest rates rose, and they did, dramatically. Against expectations of a 3.0% decline, existing home sales plunged 6.6% MoM in February (January’s +0.6% rise was also revised down to a 0.2% rise). So it seems from this weekly data that the housing market remains red-hot, but the higher mortgage rates, which remain ultra-low by historical measures, have already started dialing down the heat. The bond market will remain in focus this week amid a bevvy of auctions and moves by The Fed to let the bank capital exemption lapse. At this point, it feels almost mechanical – sell this thing, buy the other, reverse, do it again…and again…and again…

Check’s in the mail – Stimulus has been a very important part of the US investor story and checks are finally hitting accounts.  How those checks will be spent remains a question, but it is safe to assume that a lot will end up in the equity markets, especially as the S&P sits near its ATH.  Yields are taking a breather from their ascent, and this is impacting the sectors that have become attached to them.  Energy and Financials are lagging (down 1.5% and 1.7% respectively), while Consumer Durables (+2.1%) outperform, getting help from other potential homes for those stimulus checks (Under Armour +3.7%, Tapestry +3%, Nike +2.9%).  After a late morning sell-off, the S&P is back at the day’s high (3949), and more sectors are turning green. 

TGIF – After hitting a new high yesterday, the S&P 500 is taking a cautious approach as it heads into the weekend.  Yields remains the story, and after another tepid CPI yesterday, the PPI today showed that prices are rising (+2.8% y/y versus estimates of +2.7%).  That has not moved towards the consumer, but at some point it will.  With it’s animosity towards higher yields, Tech is underperforming once again, but Banks have been slowly giving up their gains (only +1.1% vs +2.1% at it’s high), and Utilities have moved into the top spot.  Can’t really remember when they’ve done that recently, so tough to read into the XLU move!  Next week investors will hear from the FOMC (Wednesday), and also get the latest from Retails Sales (estimates are -0.7% m/m).  That latter datapoint is for February, so maybe too soon for stimulus checks to impact.