TGIF – After hitting a new high yesterday, the S&P 500 is taking a cautious approach as it heads into the weekend.  Yields remains the story, and after another tepid CPI yesterday, the PPI today showed that prices are rising (+2.8% y/y versus estimates of +2.7%).  That has not moved towards the consumer, but at some point it will.  With it’s animosity towards higher yields, Tech is underperforming once again, but Banks have been slowly giving up their gains (only +1.1% vs +2.1% at it’s high), and Utilities have moved into the top spot.  Can’t really remember when they’ve done that recently, so tough to read into the XLU move!  Next week investors will hear from the FOMC (Wednesday), and also get the latest from Retails Sales (estimates are -0.7% m/m).  That latter datapoint is for February, so maybe too soon for stimulus checks to impact.

Rising from the Ashes – Even for a group of names that has had any number of days that the market found astounding, today’s move was impressive. Yes it remains off its highs from early February but its getting closer, and those that jumped in the short side of that trade (and it was voluminous last week) are already feeling the pain as those that got routed last week (hello Tesla) are doing their best to claw back the losses. For months there was an expectation the lofty $1.9tn relief bill price tag would be trimmed and perhaps significantly. But the reality of that figure coming to pass when President Biden signs the bill today (moved up a day and highlighting the admin’s desire to hit the ground running) seems to finally sinking in. On top of signing the gargantuan bill, there is the anticipation he will reveal some details on the “build back better” infrastructure program. Nearly all sectors in the green as banks take a breather, and the S&P 500 and R2K make new intra-day all-time highs. Even NQA futures above 13k bucks the downtrend line from the mid-Dec high. And as you can see below, strong breadth usually leads to higher moves; happy days!

Restart the Cycle?… After yesterday’s jarring Tech rebound put a screeching halt to the recent Rotation trend, the cogs are slowly beginning to turn again as the Nasdaq is giving back its early gains and the Dow powers ahead to new highs . Of course yesterday’s action never exactly felt “sustainable” but middling CPI data this morning delivered fresh hope for inflation-concerned Growth names. That relief is proving to be “transitory” even as bond yields have continued to slide after demand for the 10-year Treasury auction was seen as “good enough.” Semis and the FANG Gang (Autos, Tech, Software) are the S&P laggards once again, and Values sectors (Banks, Energy, Materials) are back on top.

When I Dip, You Dip, We Dip….The growth/momo traders have stepped in for some good old fashioned panic-buying today, across every index, but mainly in big-tech, lifting the Nasdaq up a stunning 4% from last night’s close. Yesterday’s reversal of Growth/Value fortunes was remarkable, and today’s reversal of the reversal is equally so. Reports of an intervention by the Chinese govt buying this morning initially stemmed the overnight bleeding and encouraged a heck of a Turnaround Tuesday for the Nasdaq, which has the index back above 13,000. Either way, the BTD crowd came in firing this morning, bigging up all the major US indices. Of course, green arrows for Nasdaq are also predicated on bond yields behaving, and after the ruckus the 7-yr Treasury auction 2 weeks ago, traders were on edge going into the 3-yr this afternoon. However, solid buyside demand met the supply and helped push yields lower across the curve, as the bond market collectively exhaled. There are plenty more catalysts left this week that could stir things up again in either direction. Feb CPI / PPI later in the week are also circled on calendars, and with Crude and Coppers moves since January, you can expect some inflation heat will have investors once again sweating over Powell’s “transitory” declarations (though crude and copper are both retracting gains today). Have we seen the worst of short-term readjustment towards a broader recovery and stronger economy? The path to the long-term cyclical revival may have already begun, but that would mean cyclical assets have further to run.

A Controlled Spin… The Rotation trade continues to come strong and steady to start the week, but luckily for US indices it’s taken a more organized form compared to last week’s sloppy Tech-led selloffs. Of course we all knew investors’ inflation-linked concerns weren’t going to magically melt away over the weekend, especially not with Oil making another (temporary) spike higher on reports of an attack on a Saudi site and stimulus headlines reminding $1.9tn in additional aid is coming this month. Add to that more positive vaccine distribution stats and Value sectors are off to the races once again, with Banks / Insurance gaining as the 10-year Treasury yield flirts with the 1.6% level it faded from on Friday. Cyclical spaces Materials and Transports aren’t far behind, with TRAN (+1.8%) hitting a new ATH as airlines (JBLU +9%, UAL +7%, AAL +5%) fly higher on back of TSA data showing a pickup in airport traffic. Energy hasn’t fully joined in the fun but remains green as Crude has retraced its steps. The underperformers are who’s who of the FANG+ crowd: Semis, Autos (really just TSLA), Tech, and Media bring up the rear, though Amazon (AMZN -0.1%) was previously breaking the trend with a boost from David Tepper, whose bullish comments on equities this morning provided  a lift to sentiment. Overall it’s more of the same with regards to last week’s themes, but at a much gentler pace that’s kept already strained nerves calm, though we’ll see if that remains the case when Feb CPI data hits the tape tomorrow morning…

More of the Same? – Nothing ever seems to be good enough these days. Today’s tape has been messy and volatile especially after a non-farm payrolls figure that caught many off guard. And it was good! But this is where Powell’s words yesterday were a concern, choosing to provide nothing in the way of a Fed plan were yields to rise too quicky. The promising job news had equities going better early on but the 10-year again flirting with the 1.60 level stemmed that move. Yields have eased as the day has progressed and equities have recaptured their footing some but the theme we’ve seen throughout the week is the same, namely tech lagging although at least it’s gone green on the day. Tesla has grabbed much of the attention, -14% on the week but Apple has now hit a 3m relative low. A close below that could have it under-performing by another 20%. Energy names the best as yesterday’s OPEC+ surprise continues to reverberate while defensives have more of a bid than we’ve seen of late. The violent nature of the week’s sell-off hasn’t resulted in the tidy +Value/-Growth we’ve become accustomed to. Rampant bullishness in terms of equity allocation by sell-side strategists as exhibited below hasn’t been this high in nearly 10 years and the last time it was triggered, stocks were a fair bit lower 12 months later.

Tech-tonic Shifts… Things are definitely starting to feel a little unstable around here. Once the beneficiary of being pulled higher by weighty Tech, US indices are feeling a little seasick as it’s been a rough ride this week dealing with some heavy doses of Rotation. After the Nasdaq Composite closed below its 13k support level yesterday, the index is again dictating the pace: it first rallied over +2% from early session lows, only to fall even further over the last 2 hours as the 10-year yield jumped from 1.48% to 1.54% in a matter of minutes as Powell spoke (more on that below). We’re not in full panic mode yet, but it’s getting ugly and cushions are running thin as the S&P and CCMP are now negative ytd, and the high-flying Nasdaq 100 is now in correction territory (worse than -10% from Feb peak).

Always an ATH somewhere – Inflation concerns are back and this is driving the 10-year yield higher once again, interestingly on the anniversary when it first broke through 1%.  Investors by now know that they must re-adjust their portfolios to higher yields (and higher expectations to inflation), and that means Tech once again legs lower.  The NDX 100 is now down 72bps ytd, while the more economically sensitive Russell is +13.4%.  Traders have become accustomed to watching Tech, and FANGMAN, lead the broader indexes, but fortunately there are other sectors in the S&P.  So while the Nasdaq is down 1.87% today, Financials (BKX +2.9%) and Energy (XLE +3.5%) have slowly lifted the other re-opening stocks higher.  If the Transportation Index (+82bps) closes at these levels, it will be an all-time high for it.

In Like A Lion… Apparently there’s an old saying “If March comes in like a lion, it will go out like a lamb” that has ties tracing back to the weather, zodiac signs, and even the Bible. It’s unclear if the adage will equally apply to the stock market, though we’re off to a good start as US equities are roaring back following Feb’s frazzled finale. There’s plenty of good news out on the re-opening front (JNJ’s vaccine approval, stimulus moving on to the Senate, Feb ISM beats, every Apple store in the US now reopened) but of course the real story today is the sell-off in Treasuries finally calming down (for now) with the 10-year yield consolidating below 1.5%. The pause (and some rest over the weekend) has allowed traders’ to catch their breath and reassess – that’s led to today’s action taking on more of a “buy everything back after a bad week” feel than any discernible reopening “theme” (SPYG +2.3%, SPYV +2.4%). When all sectors are pulling the same direction the result is obviously powerful: as of right now the SPX is on track for its best one-day performance since last June.

February Friday Fun – As markets head into month end, Treasuries have been somewhat tame today.  Granted the fun really occurred yesterday post the 7 year auction, but if anyone in the investment world was not aware of where yields were, they are now.  The 10-year move from 1% at the end of January to 1.46% today has put the easy new ATHs by stocks on alert, and now investors are calibrating their positions.  Tech has been a benefactor to the low rate environment, but it is harder to justify mega-tech levels as UST’s push higher.  As the Fed Heads have been saying, yields are still historically low, so what does that mean for the growth names?  Today however, the re-pricing of assets has halted, giving some respite (depending on your positions).  USTs are slightly lower, the Dollar a little higher, Commodities seeing some profit taking, and growthy tech seeing some sponsorship.  Whether this is just a short term stall from what markets have seen the last two weeks or a longer trend, remains the question.