Like Chumbawamba… The S&P keeps getting knocked back below 3,000 only to get up again. With the headlines on reopening, vaccines, and stimulus all continuing to move in the right direction, it’s felt inevitable the index would recapture its 200-DMA and the psychological milestone, yet the task has proven to be a pesky one. US-China barbs are partially to blame, as well as Tech having gone from poster child to problem child, with NYFANG -1.6% (funny how quick some are to label the sector a “drag” after all it’s done to contribute to the rebound!). Value still enjoying the spotlight suggests optimism around the path of the economy remains – the release of the Fed Beige Book later this afternoon should add some more color to the question as well.

Scissors > Paper – And right now optimism > pessimism. The official kickoff to the summer season has released animal spirits, as equities rip higher from the start. This echoes moves across the globe, with the S&P going above the psychologically important 3k level, which also coincides with the 200dma. This enables us to target the early March “first recovery high” at 3136, about 4.5% from here with 3200 not out of the question – absent any guidance, the trend and charts are your friends (see below). Talk of skyrocketing infections in emerging markets (Chile/Brazil) as well as pockets of waves throughout the US have been nudged aside, worst-case scenarios yet to play out. Instead the focus remains on stimulus, lockdown lenience and vaccines – welcome Novavax to the party!

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.

Blame it on China… Many are pointing to recent escalation in the ongoing US-China saga for the weaker sentiment today (things are indeed heating up), but all things considered the S&P is still up +3.2% for the week, making this more of a pause on light volumes than a sign of serious concern (of course with China beginning their annual National People’s Congress tonight, that’s subject to change). A long weekend ahead sets up tomorrow’s trading as an barometer for how confident investors are feeling in their positioning… or perhaps a less dramatic, drifty day…

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.