Topsy-Turvy: While the last number of weeks have experienced an overriding trend or momentum throughout, this week has been a bit harder to pin down. It’s alternated gains and losses, largely dominated by a tech space that knows no quit. Reports that China’s state funds were SELLING overnight after a clarion bullish call earlier in the week caught some off-guard. Add in some concerning market internals and US markets seemed preordained for a soft finish to the week. But a positive report out of Gilead on its much-heralded Remdesivir treatment helped markets reverse course. The dynamic at play seems to be, concerns about a recovery + increased COVID = buy the mega-cap techs. Hints at a possible cure/treatment/resolution/life back to normal-ish? Buy the value/underperformers. Ahead of what could be a severely ugly reporting quarter, banks were bid for, as were autos and energy. Carnival provided an update that if not supremely positive was bereft of negative and those names cruised on calmer waters. But these days of rotation have been less frequent and could be leading to an unhappy ending.

[Not Quite] Bloody Thursday… June 11th was almost a month ago, but the S&P’s -5.9% plunge that day has been on many traders’ minds (bears especially) ever since. While it’s felt like the rally has gotten back on track and the Nasdaq has successfully put that “Bloody Thursday” in its rearview (thanks Tech!), the S&P has not been able to regain the 3180-90 ground it treaded on June 10th. A fresh failed attempt today (intraday high 3179) momentarily spurred some fears of a repeat sell-off, but equities have regained their footing to trade modestly lower (Nasdaq green now). It’s no doubt a defensive day with Costco’s positive update (COST +2.9%) putting Food Retail on top and favorite hiding spot Tech in tow, while Banks, Autos, and Energy receive their daily beating. Semis are also turning higher in the afternoon after the CEO of Microchip (MCHP +3.5%) noted recent order growth.  But it’s hard to be too bearish when 4 of the “Big 5” are making new highs, and if/when the S&P does get over that technical hump it may be the green light the bulls are looking for to take on the ATH

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?). 

Going Streaking… 5 up days in a row for the S&P, 15/17 for the Nasdaq… stocks have been on quite a run of late despite all the virus threats to reopening, so a bit of a stumble today isn’t causing too much of a stir. Still it’s interesting to note the S&P keeps bumping its head around the 3182 level that marks where the index was before its downward gap on June 11. For all of the grinding higher that’s been done we have still yet to get back to the early June highs – though with FOMO still very much at play for those who missed the boat and summer volumes typically light, it sort of feels like it’s only a matter of time…

Seriously? – As Johnny Mac would say, you cannot be serious. Well if you haven’t been paying attention, in 2020, anything and everything is possible (see today’s Meme for further proof). Equities went higher than the fireworks that colored the sky over the weekend. Reason? A not so subtle headline out of China suggesting a bull market is more important than anything is one. Essentially another euphemism for stimulus, again foregoing any genuine fundamental reasons to be buying/chasing. There is the expectation of a 5th fiscal bill in the weeks to come and QE could be ramped even further at the September meeting so…if it ain’t broke..? Low volumes will result in exacerbated moves and data suggesting outflows from money markets suggests some of that sidelined cash is coming in to fill that summer vacuum. Put it all together and indices are looking to carry on from last week’s momentum.

“Roaring Back..” Those are Donald Trump’s words in regards to the economy. Indeed the government reports showed payrolls rose by 4.8m in June after an upwardly revised 2.7m gain in May. Markets responded with applause. The troubling thing though, is the market was coming off a bit first thing in the morning after Florida’s COVID numbers hit. It reminded investors that states making up half of the US population have retracted or rescinded their reopening plans. Unless corona slows, it may be hard to see improvements from here. Especially that jobless claims continue to rise, which seems to have been ignored. Further, Larry Kudlow’s words  “we are very unhappy with China” portend a worrisome set of circumstances ahead. If history is any indication, the S&P should go up anywhere between 15-22% this quarter, following its biggest quarterly gains since 1950. However, with dark clouds on the horizon, it’s up for debate. Either way, for today it seems US investors aren’t going to let anything ruin their long holiday weekend.  

New Quarter, Same Themes… H1 is in the books, and with a long holiday weekend approaching for many, the subsequent light volumes are making it feel more like a halftime pause then a definitive start to H2. That’s also partially because the storylines that have kept the S&P relatively rangebound over the last month haven’t suddenly changed of course. The eternal struggle between hope (PFE +4.5%, BNTX +7.5% on vaccine optimism) and fear (virus cases growing in 30 states) drags on, with the former getting an extra boost these days in the form of “whatever it takes.” Still with every sign of re-opening rollback making a little dent in investor sentiment, it may not be long before the virus realities pile up to cloud out even the sunniest of outlooks…the chart below of Houston restaurant reservations sure is a funny-looking “V”

It Was the Best of Times… – After the worst of times; surely it’s been a tale of two cities quarters. For the S&P, the last 3 months have been the best in 22 years but it’s hardly felt that way for most; context is key! We know what happened to precipitate this, but it’s nothing a healthy dose of hope, optimism and more than $4 trillion couldn’t cure. Today reverted to a pattern we’ve become accustomed to over the last few months – growth over value with tech reigning supreme. Micron (MU +4%) gave semis a boost on +ve earnings news (people might not be going places but their data is) and Conagra (CAG +4.9%) did the same but these sectors have been the COVID ‘winners’, so not something that should massively influence market sentiment as we continue down a 2-speed economy. Boeing (BA -6.1%) gave Industrials a boost yesterday; after losing a key customer, it’s doing the opposite today.

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.