The Weak Week that Wasn’t…Bit of a stumble the last few days (how dare you, equities!) and we would argue it’s more or less meaningless in the scheme. US indices have continued to slide lower today as China tensions are now garnering attention again, jobs numbers are erratic (if not underwhelming), and some of the most beloved tech blue chips (Amazon, Microsoft and to a lesser extent, Intel) got a little smack on their bottoms. However, Mr. Powell is holding a press conference next week and he has every reason in the world to lean overly dovish. Further, there has been a good deal of chatter around how the ‘next’ US stimulus plan is struggling to cross the line. However, no parties want blood on their hands ahead of an election, thus more stimulus will be forthcoming – talk is now August. To that end, an S&P week -60-70bps isn’t really a weak at all (spelling intended).

Summer Stumble… US indices have continued to slide lower heading into the afternoon as the S&P is on track to break its streak of 4 consecutive green sessions. China tensions still aren’t drawing much concern, but with Microsoft (MSFT -3.4%) leading Tech lower and without any fresh vaccine news to lean on, the weakness has picked up a bit over the last hour. Signs of sputter in the labor market have also put a dent in sentiment after initial jobless claims rose for the first time since March, reminding that stocks’ successful V-shape recovery isn’t necessarily mirrored in the real economy.

Houston, We Have A : No, apparently we do not. This is becoming the spat that cried wolf, at least in terms of market reaction; which could turn out to be a big mistake. Word of the US closing the Chinese consulate in Houston (the first one when relations thawed way back when) caused a tiny ripple but equities have shrugged it off. Mega-cap techs are doing ok but nothing resembling Monday’s move. Talk of a stopgap deal from Washington that maintains the $600 weekly benefit has kept equities afloat, while Pfizer and BioNTech provided today’s vaccine hope after agreeing with the US gov’t on nearly $2bn worth of doses before its even been approved. The lack of broader market reaction suggests some skepticism may be creeping (speaking of boy that cried wolf!). Energy is a drag after crude stockpiles far surpassed expectations. S&P futures broke to the upside of the range and former resistance holding as support; encouraging if it continues to hold. What’s less heartening is small-medium cap names aren’t being favored as the big 3 seemingly take the day off.

A Healthier Shade of Green?… Another day of gains for US stocks as vaccine hopes and stimulus talks seem to always strike the right tune for investors these days. The sector chart looks a bit different today however, with cyclical/value sectors like Energy, Banks, and Cap Goods, leading the charge this time in contrast with yesterday’s “Tech-splosion” (shockingly not in the dictionary!). Tech taking a break feels like a good thing too as yesterday’s vaccine news = buy stay-at-home stocks logic was a bit puzzling and of course the ever-present debate on whether the NDX’s rocket ship ride is “healthy” rages on. But while recent blips of rotation are a welcome sign of “reopening” optimism, a look at the chart below mapping relative performance of growth and value in the US and EU reminds it’s all hardly put a dent in any value recovery… Crikey! Look at the jaws on that one…

When in Doubt… – Buy large-cap tech; that’s playing out again today. Amazon is today’s torch bearer of a still red-hot space after taking a bit of a breather last week. For those counting, the “retail” giant has increased its market cap more than $550bn YTD – even after hearing on a daily basis the strength of the FAAN(M)G’ers, the #’s are staggering. A slate of tech (MSFT, Intel) and retail (Tesla) earnings are set to come later this week. Today’s highlight and subsequent lowlight came via an initially promising report on the efficacy of AstraZeneca’s Oxford vaccine. The news was promising but data remains small as does the test cases – the stock faded but the overall market has held up ok, although the troubling divergence between the Nasdaq and Russell 2000 persists.

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.

A Horse Walks into a Bar – And the bartender asks, why the long face? Seriously though – on its face, you’d think the market would be enjoying a positive day with the balance of news being in the words of Gaylord Focker, strong to quite strong. Economic data on balance read well, with retail sales the star of the show, coming in well above expectations and nearing pre-pandemic levels. (Although a leg is about to be kicked out from this support) Jobless claims came in slightly above while continuing were below. We got a mix of sectors reporting today, with healthcare and banks being the highlights, the latter rounding up the week for the IBs. Again, the thrust of reports were positive, yet all indices sit in the red. One reason for the dour reaction? Despite a massive windfall for the reporting banks this week, they’re still prepping for a deluge of bankruptcies to come. The worst part? They don’t really have a clue how bad that’s going to be. Because of this, investor sentiment remains bearish (everyone hates this mkt remember?), but remember this usually serves as a contrarian buy indicator.

Viva La Vaccine… Hope is in the air and stocks are in the green, as encouraging preliminary vaccine data from Moderna (MRNA +5.3%) and similar optimism around the AstraZeneca / Oxford vaccine (AZN +7.3%) have sparked belief that help is on the way. Value is the victor thus far (RTY above its 200-DMA), with dreams of a post-Covid world causing investors to take another look at the spaces most beaten down by the virus (Hotel/Leisure, Transports, Banks outperforming). The “weighting game” is to blame for US indices being held at bay, as the big boys of Tech (NYFANG -0.4%) act as a drag along with Semis (SOX -0.6%) amid the rotationary action and as China tensions continue to boil up.

About That Earnings Clarity… Earnings season is officially underway and stocks can’t seem to make up their mind on what do, though that’s somewhat understandable given that yesterday’s confidence shaking afternoon fade remains a fresh memory and Banks have elicited a roller coaster response from their Q2 results this far. JPM (-0.1%) and Citi (-3.4%) initially looked to lead the space higher after Investment Banking revs came in clutch to save the banks’ profitability (WFC -5.8% not so lucky…) but both have since turned red and the sector is now the worst performer (more on that below). Otherwise though today’s action has a “rotation” theme to it with Autos and Materials outperforming along with Energy getting a bid ahead of an OPEC meeting tomorrow. Throw in China retaliating against Lockheed Martin (LMT -0.4%) over a Taiwan deal and the ever-flowing stream of virus news and you understand why uncertainty / fear have US indices treading water for the time being

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.