Flip a coin – Markets are now at an interesting intersection.  They have bounced nicely looking forward, but it will take time for the economy to heal.  Yes, indicators are showing that the reopening is helping, but at some point the low hanging fruit will be harder to reach.  Volumes have been trending lower recently (yesterday was down 23% versus 5 day average), and that can be an indicator that investors are unsure what to do next. The S&P 500 is trading at 3100, Nasdaq is close to new highs, and the Fab Five have three companies with market caps near $1.5 trillion.  How long can Buy the Dip hold?

BTD? If you just look at the final tally for yesterday’s selloff, it was an ugly outcome.  But the intraday charts showed the broader equity indexes (conversely for bonds) trading in a diagonal top left/ bottom right pattern.  Hence, it appeared to be a systematic decrease in risk (because of Powell’s remarks?).  The trading trend has been to buy the dip, and today’s early action was exactly that.  The S&P opened +2.7%, but the early support has diminished and stocks have retreated steadily all day.  Value is outperforming, but more sectors are turning red (see above).  The S&P 500 200 day moving average is 3013, and the index is just below that level now.  Could the markets see a shift from the recent BTD trend?

Markets have been showing true signs of re-risking the last few days. Treasuries finally broke out of their tight Covid range (0.60-0.80%), and the Dollar was moving lower (Aussie back to pre-Covid levels). It was the much better than expected ADP on Wednesday that finally pushed some off the sidelines, and the data proved prescient.  Today’s NFP not only beat estimates, but surprised EVERYONE with a gain.  Animal spirits are alive, and the S&P 500 moved back above 3200.  Nasdaq is also just a couple points away from All Time Highs.  All sectors are green, but Value is outperforming.  And in the Small Caps joins the other global indexes above their 200 day moving averages.  All point for the potential for further upside as momentum funds are forced to pivot.

Summers here – Markets are heading into the long weekend with the traditional defensives outperforming.  Homebuilders are higher by 1.4%, Staples 19bps, and Utilities 36bps, and 10-year Treasuries are hovering around the .66% level.  And that defensive posturing means ytd underperformers (now called Value) are lagging.  Economic data started the long weekend early by taking the day off, but traders had a couple more earnings to check before they disappeared.  Once again, the CV-19 winner/ losers earnings showed, as Foot Locker (FL -12.9%) reported comp sales that fell 42.8% in the quarter.  Top supplier, Nike (-24bps), is not expected to report till mid-June.

Value leading? Straight talk from Fauci and Powell reminded participants that global economies are far from the V shaped recovery many are looking hoping for, and the S&P 500 dropped 3.8% the previous two sessions.  The gap between Value and Growth remains wide though, and when Trump said today he would be open to a Phase 4 stimulus bill (just not the one the Democrats offered this week), Value stocks helped turn around a very negative start to the session (S&P was -1.8% at the low), and the S&P is now in the green.  JPM and Wells Fargo outperformed from the start, and now the Bank sector is +3.7% (Fox’s Gasparino has been talking about a merger between GS and WFC).  The other popular Value sector, Energy, is also leading (+1.9%).  US Treasuries remain bid though, with the 10-year yield at 0.62%.  So this is not risk-on across the board, but rather a rebalance into market underperformers.

WOW – Hopefully this will be the only time in everyone’s career that markets see a NFP drop like this.  20.5mn jobs lost is tough.  Markets expect that loss to flip in the coming months, and some companies are moving forward with their plans to re-start their plants (Boeing and Ford).  But job creation will take time for the tail, since every sector saw deep cuts (leisure 7.6mn, education 2.5mn, retailers 2.1mn, manufacturing 1.33mn). 

Welcome to the Grand Re-Opening! US markets continue to embrace the “light at the end of the tunnel” as States slowly re-open their economies.  While the V, U or Nike swoosh rebound remains to be seen, any economic re-start is a short term positive.  Ford, GM and Fiat Chrysler all look to get their plants going, as Simon Property will open 49 sites in early May.  The shift has helped the economic sensitive SmallCaps outperform once again.  The Russel 2000 has gained 5% this week, and is once again above its 50 day moving average.  As a harbinger of the economy, this index will be the one to watch for any future economic disruption. 

It’s a Friday! Fridays have not been kind to equities this year, with indexes closing in the green only 26% of the time (tough to take risk during the virus outbreak).  Currently though, stocks are trying to beat those odds.  Led by Tech/ Semis, the S&P is hovering near its 50 day moving average (2807). Underperforming? Energy names are giving up some of their 15% gains seen this week (even in the wake of the Oil implosion).  US Treasuries are also stable today, with the 10-year yield currently sitting at 0.60%  Next week is busy for the Central Banks, and the Fed meets Tuesday and Wednesday. Plus, earnings will be in full swing (especially from the FANG gang).

Monday blahs – US markets posted solid gains last week, but as a new earnings season starts, investors are taking some money off the table.  JP Morgan, J&J, JB Hunt and Wells Fargo report their Q1’s tomorrow, followed by BofA, Citi, Goldman and UnitedHealth Wednesday.  Retail (thanks to Amazon +4.4% and eBay +2.2%) and Food (Walmart +1.6%) are the only sectors in the green, with Homebuilders (-6.9%) and Banks (-3.9%) underperforming.  With many international markets closed for Easter Monday, US volumes are tracking down 16% versus their 20 day average.

The Stim, the Curve, and the Potential – US equities continue to add to their gains post the European close.  The potential for a peak in new US cases leading to the potential of some easing of the quarantine restrictions, is helping investors feel better about adding to their positions.  Also helpful, another stimulus package ($250-500bn) for small businesses could be voted on before the weekend. Granted the markets have a different mindset in the final thirty minutes of trading.  But as of now, the SPX looks safe to hold the 2650 support level that was created Monday.