Out with the old – Actually, today’s action is looking just like the 1st day of the month.  Growth (as in Mega Tech) is outperforming Value by 100bps (for SPX), and both Apple (+4.5%) and Tesla (+9.6%) are doing what they did pre-split.  Microsoft is down 1.58% after China announced over the weekend that they could block and foreign buyer of artificial intelligence.  Outside of Tech, Biotech is the best sector (IBB +1.97%) with the group seeing more M&A.  Nestle announced a takeover of Aimmune Therapeutics (AIMT +171%), paying $2.6bn in cash for them.  Energy and Banks have had a tough year, so it shouldn’t be a surprise that they are the laggards today, given the focus on Tech. 

Putting the lipstick on – It’s only one way this week for the S&P, and that is higher.  If the index can close in the green, it will be the 7th day in a row, something that has occurred only 5 times in the last 5 years.  But before the bulls can high five each other, month end is Monday, so some re-positioning could occur today.  The re-opening beneficiaries are outperforming, and that group is large (Beauty, Cruises, Airlines, and Restaurants).  And Mega Tech are currently trending towards the red.  Economic data this morning showed some improvement in Personal Income (+0.4% vs June’s -1.3%), but Spending dropped m/m (+1.9% vs June’s 6.2%), showing that the economy is still working through Covid related issues. 

Can’t fight the Fed Tech – The Fed is backing the broader financial system with their balance sheet, and investors are backing the broader market via the tech sector.  Even with the underperformance of tech in Asia last night (TSM was down 6% locally at one point, Samsung -4%), US tech companies are shrugging off any 5G China slowdown concerns (Nikkei article here).  Mega tech was indicated higher pre-open and have not let up since.  Reits actually are the best performers as US Treasury yields move lower (10-yr at 0.64%).  Energy is following Crude (-0.79%) lower, and the sector (XOP) is down 2.6%.  Oil has been relatively stable, but any test of $40 could test the broader S&P strength since the commodity can be seen as an economic demand indicator. 

Going for it – After failing to get through the magic mark of 3386.15, the S&P is giving it another shot today.  As has been the trend, it is the mega tech that is helping with this push.  And to punctuate that impact, Apple (+2.1%) is just 1% away from hitting a $2trln market cap.  But even with the mega tech strength, the second best performing sector is Retail (XRT +55bps).  Looking at the constituents, it’s easy to see that the Covid beneficiaries are driving its performance (Overstock, Etsy, Wayfair, Stamps).  Banks once again are underperforming, even as Treasury yields are moving higher again (see below).

Cautious, even if green – Heading into Friday, traders are treading carefully after four days of gains in equites.  Congress is still working on their stimulus plan, plus the Nonfarm Payroll data will be reported. Yes POTUS has pointed to a big number, and today’s jobless claims were better than expected (1186k vse 1400k), but the ADP miss Wednesday is still a reminder that this recovery is a work in progress.  The safety trade in Tech (led by the mega caps) is pushing that sector to the best performer list, and also pushing Facebook (FB +5.9%) to a new ATH.  Transportation stocks are also doing well, led by Kansas City Southern (+5%) as it appears a deal for them by Blackstone is getting closer.  On the losing end is Healthcare, getting hit from Becton Dickinson (-8.7%), ResMed (-12.5%) and Dentsply (-7.6%), all of which reported earnings. US treasuries are also ticking higher, with the yield touching 0.5019% for a brief moment.  Investors playing it safe into a potentially volatile Friday.

Cautious, kind of – With the earnings season just starting, and it also being a summer Friday, the tape has a defensive feel to it today.  Utilities (+1.9%) and Healthcare (+1.7%) are the top performers, while the Tech heavy Nasdaq 100 has been trading in the red all day.  The only reason why this is not a risk off day, is that US Treasuries have been trading lower as well.  Economic data was mixed this morning with Housing Starts positive, but Michigan sentiment dropped to 73.2 from 78.1  Next week will have 79 S&P 500 companies reporting (see below), giving investors another reason to pause.

If it’s Monday, equities must be higher – The last 9 Monday sessions have seen stocks close in the positive, and today is moving in that direction as well.  The FDA provided fast track designation to Pfizer (+5%) and BioNTech (+14.3%) today for their covid vaccine, and that has helping the Pharma sector outperform (Moderna +21% also helping on being added to the NDX).  But Tech is also keeping pace with FANG +1.8% and Semis (see below) benefitting from some M&A.  The broad sector gains have finally pushed the S&P 500 above 3200, and back towards 3233.  A close above that would put the pre-covid 3337 level in its target.  Even with the strength in equities, Treasury yields remain low (10-yr 0.64%), a sign that not all are believers in the strength of the economy. 

New records continue to break, and its sounding like a broken record.  While Nasdaq has not created a new high today (yet), the same trade theme is present.  Buy Tech (Semis, Internet, Software), and underweight everything else.  Some are even comparing the Tech performance as a safety trade seen similarly in Gold and Treasuries.  Homebuilders are actually the best group today (ITB +2.9%), getting a push from low yields, and therefore an increase in Mortgage Apps (+2.2% w/w). Most sectors have bounced 65-85bps since the Euro close, except Materials (chemicals weighing) which have continued their path lower.  Conversely, in commodities, metals continue their move back to levels last seen pre-covid.  Gold we understand, but copper is now only 2.8% away from the January highs and is u/c ytd (is it getting caught up in the China bull market?). 

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.