Eyes on the Prize… Even before the afternoon’s Moderna snafu, investors’ optimism seemed to fizzle yesterday as the S&P stalled and Monday’s rotation to Value came to a stop. Well perhaps all the nail-biting over Phase 1 clinical trial sample sizes (and the subsequent selloff) was necessary to get investors to re-focus on the reopening / Fed ammo narrative that was the original catalyst to start the week. That’s been to the benefit today of hot & cold Value/Cyclical sectors like Banks, Autos, Energy and Small caps that are getting another taste of outperformance. Of course it goes without saying there’s a long way to go before those moves can be thought of as more than just reversion to the mean…

Embracing Hope – After yesterday’s buying bonanza, markets were sure to about face and forge a sharp reversal today. However, the potential for a vaccine and Powell speaking to the use of any and all CB weaponry, has had lasting enough effects to keep the rally (for the S&P and Nasdaq) going. today The good news is value has started to outperform (though MSFT and Apple are doing a bulk of the work for everybody), and yesterday S&P equal weighted smalls also outperformed. Further, the positioning sentiment indicator is poised for recovery (see below). There are obviously a million notes of caution going into the end of 2020– unemployment, the US presidential election and possibly tighter lending standards. No one can accurately predict the war between science/stimulus vs. nature/fear, but we do know volatility will be one winner.

More Anything? More Everything! – Today’s buying binge was reminiscent of Jerry Seinfeld in first class, when the attendant asked if he’d like more of anything – more everything indeed. News was already being spun positively early in the morning – the Moderna vaccine results (on EIGHT patients mind you) sent the market into a full blown Tasmanian devil tornado. We hadn’t seen value/cyclical names get bid for but that narrative shifted a bit today, with banks, autos, energy, travel/leisure and certain consumer disc names north of 5% gains, and plenty of names within those sectors into double-digits. The R2K, also failing to keep pace with the bigger indices, was lapping the field at +5.5%. The burst in optimism led to the biggest imbalance the TICK Index has ever seen at today’s open.

Pushing for Positive… On the surface it appears US equities are attempting a repeat of yesterday, trying to overcome morning weakness to break back into the green. But under the surface today’s action looks a little different: yesterday it was beaten-up Value sectors like Banks and Energy that sparked the intraday reversal, but the US 10-year barely budging demonstrated it wasn’t a risk-on move (no money flowing from the safety of bonds into beaten-down equities.) Today’s sector breakdown presents a muddled picture as well: yes the 10-year yield is pushing higher (after earlier dropping below 0.6%) and small caps are higher (IWM +1.5%) but defensives spaces like Food/Bev and momentum names (FDN +1.5%) are among the outperformers too, while Banks are left behind and Tech is dragged by potential China backlash.  

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.

The More We Know…The good news? The number of new confirmed COVID-19 cases has levelled off on a global basis. The bad news? That doesn’t tell the whole story. Some countries – particularly developing economies – are only in the beginning stages of this pandemic, which is huge cause for concern because many have larger populations and fewer resources. The global curve is still a ways from being flat.

Disneyland (Shanghai) open, Fantasyland next? – There’s a growing chorus that many bulls already reside in this hypothetical amusement park. Yesterday a prominent US IB said stocks are due for an 18% pullback, today another says the bullish case for US stocks “left us about six weeks ago” and the always colorful (yet generally bearish) David Rosenberg said the United States is in the midst of the Great Repression – the commentary didn’t improve from there. Want something for the bull crowd? After GDP declines similar to what we saw in Q1, historically we’ve seen the S&P go better (see below)…we trade modestly in the red today as the market digests another historic albeit expected data point (consumer prices).

No Breather Needed… After US stocks powered into the weekend, today’s slow start was easily dismissed as the market taking a “breather.” But apparently FOMO and FANG need no rest, as the usual suspects of tech led the Nasdaq into the green (FDN +1.1% new all-time highs) and the S&P and small caps (IWM +0.1%) have now turned positive as well. Clearly the re-opening optimism hasn’t played out yet, with CNBC making much ado about Shanghai Disneyland opening its gates to a limited crowd. However, if countries like China and South Korea that are employing contact-tracing and other arguably invasive methods are still having trouble containing second wave infections, how will the USA fare against the same challenges?   

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). 

Umm…Say What Now? – The Nasdaq is now in positive territory for the year. The more concentrated NDX100 went above the ‘high-water’ mark on Monday and has only added to it since. Of course, FAAN(M)G along with Tesla make up nearly 50% of the QQQs and their runs has been well-documented. Where has this money been coming from? Value names have yet to grab the conch, with large-cap and more notably small-cap value names still deep in the red YTD. Companies that have been neatly placed for this sort of event, Peloton (+16.7%), Paypal (+13%), and Fortinet (+20%) will only have investors more in need to chase performance. Meanwhile, Apple and Microsoft are bigger than the EuroStoxx 50.