Rising from the Ashes – Even for a group of names that has had any number of days that the market found astounding, today’s move was impressive. Yes it remains off its highs from early February but its getting closer, and those that jumped in the short side of that trade (and it was voluminous last week) are already feeling the pain as those that got routed last week (hello Tesla) are doing their best to claw back the losses. For months there was an expectation the lofty $1.9tn relief bill price tag would be trimmed and perhaps significantly. But the reality of that figure coming to pass when President Biden signs the bill today (moved up a day and highlighting the admin’s desire to hit the ground running) seems to finally sinking in. On top of signing the gargantuan bill, there is the anticipation he will reveal some details on the “build back better” infrastructure program. Nearly all sectors in the green as banks take a breather, and the S&P 500 and R2K make new intra-day all-time highs. Even NQA futures above 13k bucks the downtrend line from the mid-Dec high. And as you can see below, strong breadth usually leads to higher moves; happy days!

A Controlled Spin… The Rotation trade continues to come strong and steady to start the week, but luckily for US indices it’s taken a more organized form compared to last week’s sloppy Tech-led selloffs. Of course we all knew investors’ inflation-linked concerns weren’t going to magically melt away over the weekend, especially not with Oil making another (temporary) spike higher on reports of an attack on a Saudi site and stimulus headlines reminding $1.9tn in additional aid is coming this month. Add to that more positive vaccine distribution stats and Value sectors are off to the races once again, with Banks / Insurance gaining as the 10-year Treasury yield flirts with the 1.6% level it faded from on Friday. Cyclical spaces Materials and Transports aren’t far behind, with TRAN (+1.8%) hitting a new ATH as airlines (JBLU +9%, UAL +7%, AAL +5%) fly higher on back of TSA data showing a pickup in airport traffic. Energy hasn’t fully joined in the fun but remains green as Crude has retraced its steps. The underperformers are who’s who of the FANG+ crowd: Semis, Autos (really just TSLA), Tech, and Media bring up the rear, though Amazon (AMZN -0.1%) was previously breaking the trend with a boost from David Tepper, whose bullish comments on equities this morning provided  a lift to sentiment. Overall it’s more of the same with regards to last week’s themes, but at a much gentler pace that’s kept already strained nerves calm, though we’ll see if that remains the case when Feb CPI data hits the tape tomorrow morning…

Always an ATH somewhere – Inflation concerns are back and this is driving the 10-year yield higher once again, interestingly on the anniversary when it first broke through 1%.  Investors by now know that they must re-adjust their portfolios to higher yields (and higher expectations to inflation), and that means Tech once again legs lower.  The NDX 100 is now down 72bps ytd, while the more economically sensitive Russell is +13.4%.  Traders have become accustomed to watching Tech, and FANGMAN, lead the broader indexes, but fortunately there are other sectors in the S&P.  So while the Nasdaq is down 1.87% today, Financials (BKX +2.9%) and Energy (XLE +3.5%) have slowly lifted the other re-opening stocks higher.  If the Transportation Index (+82bps) closes at these levels, it will be an all-time high for it.

February Friday Fun – As markets head into month end, Treasuries have been somewhat tame today.  Granted the fun really occurred yesterday post the 7 year auction, but if anyone in the investment world was not aware of where yields were, they are now.  The 10-year move from 1% at the end of January to 1.46% today has put the easy new ATHs by stocks on alert, and now investors are calibrating their positions.  Tech has been a benefactor to the low rate environment, but it is harder to justify mega-tech levels as UST’s push higher.  As the Fed Heads have been saying, yields are still historically low, so what does that mean for the growth names?  Today however, the re-pricing of assets has halted, giving some respite (depending on your positions).  USTs are slightly lower, the Dollar a little higher, Commodities seeing some profit taking, and growthy tech seeing some sponsorship.  Whether this is just a short term stall from what markets have seen the last two weeks or a longer trend, remains the question.

Reflation – The easy path for equities is higher and therefore that’s exactly where they are today.  But instead of having the mega tech group provide the punch, it is the more economically sensitive sectors/ indexes leading today.  Energy (XOP +6.1%), Semis (SMH +2.57%) and Banks (BKX +1%) are the best performers, while Utilities (XLU -1%) is the worst.  Energy is benefitting from Oil’s march higher, and Semi’s from their auto chip shortage, but long-term US yields are moving those last two sectors.  The 30-year yield traded above 2% for the first time since last March, giving a boost to the banks, and therefore hurting some of the higher dividend sectors (XLU).  As Value is beating Growth today, earnings continue to provide a positive story.  So far about 60% of the S&P 500 have reported, and the blended earnings rate is a positive 1.7% (according to FactSet).  This compares to estimates of a 9.3% drop at the end of December…. Another tailwind for the markets. 

I heart February – The turn of the calendar continues to benefit the US as stocks once again are heading towards new ATHs.  With the Fed holding steady with their mandate, stimulus is the next obstacle Washington is tackling, and with VP Harris casting the tie breaking vote this morning, the Democrats have shown they are willing to move forward with their stim plan without their Republican colleagues.  Showing the economic difficulty is still ongoing, Nonfarm payrolls only rose 49k (and December was revised lower).  While it missed the 105k estimated, those estimates had risen from 50k on Monday.  Seems January was a difficult month to predict. But it’s about stimulus now, and only Tech/ Semis (XLK -18bps/ SMH -78bps) are underperforming.  Metals (XME +2.3%) are following metal commodities higher, as is the Energy sector (XOP +1%).  Oil (CL1 +1%) seems ready  touch $60, a level last seen in January 2020. Lastly, earnings are a little more than half way done, and they are +6.8% y/y (for the S&P 500).  The message still is supportive for the markets. 

Let’s Just Pretend That Never Happened… Here I was thinking that it would be a long time before I saw a market phenomenon as strange as watching WTI futures contracts trade at negative prices last year… Granted I’ve been wrong about plenty, but seems safe to say no one was expecting to spend how much time and attention on GameStop this week. But after all the risk-off doom and gloom yesterday, apparently all it took was some time to regroup (and of course a little help from the retail brokerages restricting speculative tickers) for the market to shrug it all off again and attempt to regain the ground lost yesterday. A second look at the Fed’s re-commitment to the current path of QE as well as some reassuring eco data (jobless claims on the decline once again, Dec new home sales up for first time in 5 months, GDP broadly inline) have also chipped in, and earnings beat are finally getting the warm reception they expected (with two notable exceptions). On that note Financials are out in front with T Rowe (TROW +5.6%) leading the way post its reporting, and Semis are ripping once again with Apple suppliers getting a boost from its impressive iPhone numbers. The Software sector is also on the rise due to ServiceNow’s (NOW +7.9%) earnings, while Comcast (CMCSA +7.6%) has had to lift the Media space without much help from Facebook (FB -0.4%). The lone sectors in the red are Tech and Autos thanks to..

The pain trade – The march of historic days continues as retail trading is once again making itself herd.  Although they may be involved in a handful names, the impact is becoming broader as some institutions are forced to lower some exposure (more on that below).  The tape has had a defensive/ risk off posture since the open with all three major indexes lower, and a bid in Treasuries (10-yr yield at 1.009%) and the Dollar (DXY +50bps).  Not all sectors are red though, with Energy gaining 1%.  EIA Oil data this morning followed the API, showing a draw of 9.9mn barrels for the week.  The group has been one of the better performers so far this year, but stocks have been trending lower since last week, and many are testing technical supports (the XLE itself is held the 50 day earlier).  Also trading in the green, albeit under the surface, are the old WFH staples.  Building on moves since Monday, Clorox (+5.3%), Campbells (+5.9%), General Mills (+3%) and Walgreens (+4.1%) are higher, although only Walgreens (new CEO from the outside) has news.   Semis are leading on the downside (-3.1%) even after Maxim (-3.5%), AMD (-4%) and Texas Inst (-3.3%) all posted solid results. 

New week, same outlook – Stocks are starting the week in a cheery mood as Janet Yellen makes her case for more stimulus to the Senate Finance Committee (see below).  The earnings calendar has started with the big banks, and while their FICC businesses missed estimates, their equities units have beat.  Not surprising given where markets are, and that the new retail wave that is here (Blackberry +20%, the new target).  Q4 was about the IPO/ SPAC and any other equity issuance, and not debt capital markets (that was Q2 and Q3).  Investors are using the earnings excuse to take some profits in financials, and that sector is lagging the broader tape (BKX +63bps).  Tech, on the other hand, is leading the way getting help from  the FANG gang (+2.4%), and Semis (SMH +2.9%).  While it is Netflix (+1.7%) that reports after the close tonight, Facebook (FB +3.3%) and Google (+4.1%) are the outperformers.  Major indexes are just below their all-time highs, and both the economic and earnings calendar this week should be supportive (not as much as potentially more stimulus though).

Is this exuberance rational? Broader indexes once again trading higher as the markets prepare for a new stimulus plan announced by President Elect Biden.  With a $2 trillion price tag being bantered, the Russell 2000 is the index outperforming.  Energy (XOP +3.1%) and Banks (BKX +2%) helping the Value vs Growth trade, but it’s Telcos (XTL +3.4%) and Semis (SMH +3.2%) with the news.  Acacia (ACIA +32%) is rising after Cisco said they would buy them, and Taiwan Semi (TSM +9.6%) earnings, are supporting those sectors respectively.  TSM will also spend $25-28 billion on capex in 2021, pushing semicap cos (ASML, AMAT, KLAC, LRCX) up 6-7% on the day.  Since it’s such a positive day, it makes sense for two new IPOs to skyrocket; Petco (WOOF) is up 60%, and Poshmark up 131%.  Add that bitcoin is back to $40,000, and GameStop (GME) is up 26%, exuberance is bubbling.