Can’t Win Em All … It seemed this morning the message was “new day, same story” for US stocks as futures sat comfortably in the green at ATHs with little changed overnight in the stimulus/vaccine narrative. Even a disappointingly cool inflation reading from CPI data premarket, which dinged bond yields, did little to rock the equities boat. But despite what’s it seemed recently, you can’t win em all, and indices turned lower within the first hour without little indication why except for the move being led by the weighty Big Tech names (which of course have could afford a little more profit taking with NYFANG+ +11% to start Feb). Since then action has been a little drifty, with the release of Powell’s speech giving investors little new to react to. Sector-wise Energy is the clear leader, boosted as Crude reversed its fortune on bullish inventory data to make a new 1-year high. Banks are also hanging tough to keep up the day’s Value tilt, despite the weakness in yields (only back to last week’s levels though really). To the downside it’s Autos where GM (-2.9%) signaled more caution on the semiconductor shortage and Tesla (TSLA -4.7%) is  giving back its Bitcoin; Tech is seeing additional pressure from Cisco’s (CSCO -4.0%) disappointing update last night. Other notable earnings include Twitter (TWTR +8.7%) flying to a 7-year high on encouraging digital ad numbers. Whether the SPX gets it new high remains to be seen but regardless the market seems pretty chilled either way as earlier this morning the VIX momentarily dropped below 20 for the first time in almost a year.

Reflation – The easy path for equities is higher and therefore that’s exactly where they are today.  But instead of having the mega tech group provide the punch, it is the more economically sensitive sectors/ indexes leading today.  Energy (XOP +6.1%), Semis (SMH +2.57%) and Banks (BKX +1%) are the best performers, while Utilities (XLU -1%) is the worst.  Energy is benefitting from Oil’s march higher, and Semi’s from their auto chip shortage, but long-term US yields are moving those last two sectors.  The 30-year yield traded above 2% for the first time since last March, giving a boost to the banks, and therefore hurting some of the higher dividend sectors (XLU).  As Value is beating Growth today, earnings continue to provide a positive story.  So far about 60% of the S&P 500 have reported, and the blended earnings rate is a positive 1.7% (according to FactSet).  This compares to estimates of a 9.3% drop at the end of December…. Another tailwind for the markets. 

I heart February – The turn of the calendar continues to benefit the US as stocks once again are heading towards new ATHs.  With the Fed holding steady with their mandate, stimulus is the next obstacle Washington is tackling, and with VP Harris casting the tie breaking vote this morning, the Democrats have shown they are willing to move forward with their stim plan without their Republican colleagues.  Showing the economic difficulty is still ongoing, Nonfarm payrolls only rose 49k (and December was revised lower).  While it missed the 105k estimated, those estimates had risen from 50k on Monday.  Seems January was a difficult month to predict. But it’s about stimulus now, and only Tech/ Semis (XLK -18bps/ SMH -78bps) are underperforming.  Metals (XME +2.3%) are following metal commodities higher, as is the Energy sector (XOP +1%).  Oil (CL1 +1%) seems ready  touch $60, a level last seen in January 2020. Lastly, earnings are a little more than half way done, and they are +6.8% y/y (for the S&P 500).  The message still is supportive for the markets. 

On the Road Again… The road to all-time highs that is. US indices are green again for the third time this week, albeit it not as convincingly as Monday/Tuesday, but the action still serves to put last week’s frenzy even farther in the rearview mirror. It seems inevitable we’ll retest the highs, but once we get there we’ll be faced with the familiar question of whether Rotation / Reflation has more short-term juice left or whether Growth/Tech will have to lead the way as we impatiently wait for more progress on the vaccine rollout and economic recovery. A look at the sector table today provides no clear answer: Energy is the best performer as crude prices responds to renewed commitments from OPEC+ to clear pandemic surpluses, and Banks are again following bond yields higher as stimulus/inflation expectations heat up. On the other hand, Media is up sharply thanks to Alphabet (GOOGL +9.0%) making an earnings beat look as easy as A-B-C, though if Spotify (SPOT -6.7%) were in the S&P that might look a little different (our analyst cutting ests materially after earnings). Retail could have followed seeing as Amazon (AMZN u/c) also blew the doors off consensus by almost doubling EPS expectations, but investors are mulling over Jeff Bezos’s decision to transition out of the CEO role. To the downside, Semis are taking a breather from their breathless rebound, and coincidentally Autos are in the red as GM (+2.8%) and Ford (F +2.9%) admit further trouble with semiconductor shortages; the two carmakers pared intraday gains, however it’s actually a pullback from the heavily weighted Tesla (-1.8%) that has the sector in reverse. Disappointing reports from Amgen (-2.9%) and Biogen (BIIB -5.0%) have Pharma well in negative territory despite better numbers from AbbVie (ABBV +2.9%).

6 More Weeks? If Only! It’s that time of year when that pesky rodent comes out of the ground and predicts another month and a half of winter. As if we care about that right now. To many it’s been Groundhog Day every day for nearly a year now and news headlines suggest we’re well away from being out of the woods. TWO MASKS?! But much like Punxsutawney Phil when he sticks his head out, cooler heads are prevailing. Our pharma team assuaged these concerns with data and it seems the Street is feeling similar, the reopening / reflation / rotation trades performing strongly today with 10-year yields resuming their climb higher. Equities are on track for their highest 2-day gain since November and the S&P has its sights set on a new ATH, about 50bps away. In fact, no significant damage was done at the index level and given the spike in the VIX we saw last week, the fact it didn’t result in a bigger drawdown was also encouraging. Earnings have again come in relatively well (UPS +1% giving transports a boost) and crude above $55 for the first time in more than a year. But do note – the makeup of the indices is largely tech and an uptick in oil could lead to inflation potential, hurting the growth prospects of those growth names. Second is the move higher in the USD – it has long been a tailwind for stocks but it has been on an upward trajectory since the beginning of the year. And the market is already VERY short the USD; and we know how that can go. Speaking of…

Bring on Act II… The Reddit circus appears here to stay for the time being (check out spot Silver contracts SIA +11% this morning), but clearly the initial shock of Act I has worn off and markets have regained their composure to start the new week. While we may all come away with a deeper understanding of the plumbing behind the scenes of equites clearing/settlement than we’d ever care to know (add it to the list of topics we’ve become experts in over the last year: epidemiology, Electoral College law, etc.) it seems more hopeful that Retail-mania won’t be the death blow to the current rally that many feared. With that, investors are piling back into the favorite names (GVIP +2.0%) they were forced to sell in last week’s de-grossing (chart below). That of course means the mega-cap FAAMG names are leading the charge: NYFANG +2.9% today after being dinged a healthy -4.1% last week and with AMZN (+3.4%) and GOOGL (+4.1%) on deck to report tomorrow night. FANG footprints are all over the sector leaders, with Autos (TSLA +5.2% after getting a broker u/g to a $1.13tn valuation… and no it’s not from WSB analysts) along with Software and Semis. Not much is red today, but Value / defensives are being overlooked amid the risk-on / re-grossing sentiment. That includes Energy, which isn’t getting a big boost to match the reports of big merger talks held last year between giants Exxon (XOM +0.1%) and Chevron (CVX +1.3%)… hello Chexxron?

Pull Your Head Out – It’s been a turbulent and fascinating week (Month? Year? How long is January again?) and given there’s still 2 hours left, who knows what’s still yet to come. January looked set to cruise (too soon?) to a comfortable monthly gain but that’s before the online army went nuclear. We’ll get to that but to quote an online daily, “The market needs to get a grip. GME and AMC are amusing to watch and created performance headwinds for some, but they are both meaningless distractions rather than an actual news story. On the busiest week of the Q4 season where companies are crushing expectations all anyone wants to talk about is the video game equivalent of Tower Records – people need to get their priorities in order.” About 1/3 of the way through earnings we’ve seen the standard top and bottom line beats but more encouragingly is earnings growth above 3% in aggregate and it’s not only tech doing the heavy lifting. There are a host of moving parts to juggle, with hedgies growing down exposure while others yell Buy the Dip! Earnings seemingly getting lost in the shuffle but perhaps they’re holding up a market that would be much worse off if the results weren’t as strong. And yet despite the stresses the market is feeling (a 76% jump in volatility this week), it’s largely held in there. That said, the market has broken its 50dma, a close of the futures below 3600 and 40 on VIX could portend trouble to come.

Let’s Just Pretend That Never Happened… Here I was thinking that it would be a long time before I saw a market phenomenon as strange as watching WTI futures contracts trade at negative prices last year… Granted I’ve been wrong about plenty, but seems safe to say no one was expecting to spend how much time and attention on GameStop this week. But after all the risk-off doom and gloom yesterday, apparently all it took was some time to regroup (and of course a little help from the retail brokerages restricting speculative tickers) for the market to shrug it all off again and attempt to regain the ground lost yesterday. A second look at the Fed’s re-commitment to the current path of QE as well as some reassuring eco data (jobless claims on the decline once again, Dec new home sales up for first time in 5 months, GDP broadly inline) have also chipped in, and earnings beat are finally getting the warm reception they expected (with two notable exceptions). On that note Financials are out in front with T Rowe (TROW +5.6%) leading the way post its reporting, and Semis are ripping once again with Apple suppliers getting a boost from its impressive iPhone numbers. The Software sector is also on the rise due to ServiceNow’s (NOW +7.9%) earnings, while Comcast (CMCSA +7.6%) has had to lift the Media space without much help from Facebook (FB -0.4%). The lone sectors in the red are Tech and Autos thanks to..

The pain trade – The march of historic days continues as retail trading is once again making itself herd.  Although they may be involved in a handful names, the impact is becoming broader as some institutions are forced to lower some exposure (more on that below).  The tape has had a defensive/ risk off posture since the open with all three major indexes lower, and a bid in Treasuries (10-yr yield at 1.009%) and the Dollar (DXY +50bps).  Not all sectors are red though, with Energy gaining 1%.  EIA Oil data this morning followed the API, showing a draw of 9.9mn barrels for the week.  The group has been one of the better performers so far this year, but stocks have been trending lower since last week, and many are testing technical supports (the XLE itself is held the 50 day earlier).  Also trading in the green, albeit under the surface, are the old WFH staples.  Building on moves since Monday, Clorox (+5.3%), Campbells (+5.9%), General Mills (+3%) and Walgreens (+4.1%) are higher, although only Walgreens (new CEO from the outside) has news.   Semis are leading on the downside (-3.1%) even after Maxim (-3.5%), AMD (-4%) and Texas Inst (-3.3%) all posted solid results. 

Concern Behind the Smiles… New all-time highs can usually cover up for a lot, but even with the SPX, Nasdaq, NDX, and Russell 2k all still in the running for a fresh one today, things still haven’t felt quite right of late. Of course some of that is simply investors being distracted as they watch in shock and horror (and a little jealousy) at the moves that being manufactured by the Reddit/Retail army, but more than that it seems the market is waiting for a signal to inform where to go next after entering this latest period of Rotation hesitation. Earnings season should provide more than enough tangible guidance (fundamentals have to matter some time, right?) but even with a number of companies reporting this morning, it still feels like the market is waiting to see what the “Big Guns” have to say, beginning with Microsoft (MSFT +1.6%) after the bell. That’s left most indices drifting around their flatlines in nervous anticipation, with the S&P sector table displaying a bit of a defensive tilt. That means Food Retail and Real Estate have been hovering near the top, along with more FAAMG-related Media (Is TWTR +4% because they banned the My Pillow guy?) and Software. Cap Goods are mildly negative amid an earnings tug-of-war between winners (GE +5%, MMM +3%, and RTX +4%) and the less fortunate (ROK -4%, LMT -3%, and PCAR -2%.)  Telcos are lower as Verizon (VZ -3%) reporting a cut fiber cable in Brooklyn has resulted internet outages on the East Coast (luckily all of the Redburn WFH crew still up and running). Energy is the biggest laggard despite Crude remaining fairly steady.