Mega Move Monday…This was an actual thing in 2020. Typically, the two weekend days allowed for a significant build-up that caused some decent volatility come Monday morning. But, the energy fizzled over the course of the week and left us with Flat Fridays (we heart alliteration). Today hasn’t given us mega moves per se, but the volatility is striking. The S&P is currently flat after being down almost -1.5% and opening only slightly higher. Nothing ominous, but today does have some faint echoes of the more worrying days of last year —a few more reasons to be cautious. The race is on between the current vaccinations and the various mutations. Tech’s recent resurgence (along with the WFH ETF’s daily new highs) had already made clear that beneath all the ATHs lies concern that vaccine rollouts/ further stimulus isn’t going to spark the perfect recovery that has been priced. How to fight the latter involving possibly onerous tactics is what the market does not like. The past few weeks have seen Nasdaq actually outperforming Russell in old-school fashion (this morning NQ o/p RTY by 80bps, was as high as ~175bps earlier), with some of that “renormalization” trade backing-down and the UST curve bull-flattening early. We know it’s a busy earnings week (25% of the S&P 500 reporting — 39% by market value) and with the Fed on Wednesday there’s plenty still to play for, but for now the headlines are concerning and investors gravitating to the playbook they learned the hard way last year. Below the divergences between VVIX and VIX which should be closely observed. Last time was a year ago….

It’s a New Dawn, A New Day… – And so far markets continue feeling pretty good. Much chagrining took place over the prospect of the White House and Congress being under one party’s control but like everything else this market faces, it easily brushed it off its shoulder. Interestingly, the sector/style of stocks most viewed at risk were tech/growth/momentum but over the last two days they’re having a go. At the COB yesterday afternoon, the SPX, DJIA, CCMP, RTY, NYFANG+; you name it, it likely closed at a new high. Of course some are bit more concerning than others. What does the WFH ETF hitting a new high say about all that “vaccine hope” baked into the outlook for economic recovery? FAAMNG roaring back to life may feel good for indices, but remember big Tech was the safety play last year. And if you look at the chart below, it’s not just the FANG GANG lifting the Nasdaq (and large parts of the S&P) boat. Alternately, the reflation/reopening trade has stumbled, lagging growth by a huge margin yesterday and doing little to close that gap today.

It’s a New Dawn, A New Day… – And so far markets continue feeling pretty good. Much chagrining took place over the prospect of the White House and Congress being under one party’s control but like everything else this market faces, it easily brushed it off its shoulder.

Don Voyage… Man those 4 years breezed by, didn’t they? It’s obviously a special day in America (despite the pomp and circumstance being socially-distanced and watched over by the National Guard) and US equities are doing what they do best lately in rising to meet the occasion. After all, a rally that’s feasted so heavily on ”hope” should have no trouble cheering on what is essentially a ceremonial exercise. That said inauguration days for 1st term presidents are historically down days for the Dow, which is poised at the moment for its best Inauguration Day performance in the last 100 years (after a cool +73% gain since Trump’s swearing in…). The Nasdaq is still the bigger story/outperformer today, with the good ole FANG Gang powering higher despite all the stimulus fervor whipped up by Yellen’s testimony yesterday. Netflix (NFLX +16%) reminding everyone last night why “Growth” is labeled as such is a big reason for that; more on that below, but Media, Tech, Software, and Retail perched atop the sector table shows the sway the big boys have today. The BKX (-2.1%) finds itself still unable to break out of its earnings season stall out, as more disappointing results from non-IB banks (BK -7.6%, USB -5.5%, CFG -2.7%) have overshadowed an impressive trading-driven beat from Morgan Stanley (MS -0.1%). Household Goods are also lagging despite P&G (-1.2%) boosting its FY guidance after a solid Q2 and Colgate-Palmolive getting a broker upgrade (CL -1.1%).

New week, same outlook – Stocks are starting the week in a cheery mood as Janet Yellen makes her case for more stimulus to the Senate Finance Committee (see below).  The earnings calendar has started with the big banks, and while their FICC businesses missed estimates, their equities units have beat.  Not surprising given where markets are, and that the new retail wave that is here (Blackberry +20%, the new target).  Q4 was about the IPO/ SPAC and any other equity issuance, and not debt capital markets (that was Q2 and Q3).  Investors are using the earnings excuse to take some profits in financials, and that sector is lagging the broader tape (BKX +63bps).  Tech, on the other hand, is leading the way getting help from  the FANG gang (+2.4%), and Semis (SMH +2.9%).  While it is Netflix (+1.7%) that reports after the close tonight, Facebook (FB +3.3%) and Google (+4.1%) are the outperformers.  Major indexes are just below their all-time highs, and both the economic and earnings calendar this week should be supportive (not as much as potentially more stimulus though).

Second-Guessing Into the Weekend… US market action today suggests investors are thinking they may have gotten a liiitttle ahead of themselves in declaring the reign of the Reflation trade. Granted the damage done is limited in comparison to the recent gains, but rotation is firmly in reverse today as investors grapple with a few doses of reality that blur the rose-colored recovery timeline that has been coaxing markets higher. The consternation began with the long-awaited announcement last night of President-elect Biden’s “American Rescue Plan”, which includes additional $1400 individual checks and a proposal for a $15 minimum wage within its $1.9tn price tag. The details themselves came as no surprise, yet futures were lower overnight as months of stimulus “hope” were replaced by the reality of likely Republican resistance as Biden seeks to garner bipartisan approval (not to mention the reality of corporate tax hikes). Eco data and Bank earnings (more on these below), piled on as nagging reminders as to why the stimulus is necessary in the first place. The uneasiness has left defensives Real Estate and Utilities atop the sector table, while the Cyclical gang of Energy (XOM -4.3% on word of an SEC probe), Banks, and Transports fill out the bottom (but notably maintain healthy weekly gains).

Is this exuberance rational? Broader indexes once again trading higher as the markets prepare for a new stimulus plan announced by President Elect Biden.  With a $2 trillion price tag being bantered, the Russell 2000 is the index outperforming.  Energy (XOP +3.1%) and Banks (BKX +2%) helping the Value vs Growth trade, but it’s Telcos (XTL +3.4%) and Semis (SMH +3.2%) with the news.  Acacia (ACIA +32%) is rising after Cisco said they would buy them, and Taiwan Semi (TSM +9.6%) earnings, are supporting those sectors respectively.  TSM will also spend $25-28 billion on capex in 2021, pushing semicap cos (ASML, AMAT, KLAC, LRCX) up 6-7% on the day.  Since it’s such a positive day, it makes sense for two new IPOs to skyrocket; Petco (WOOF) is up 60%, and Poshmark up 131%.  Add that bitcoin is back to $40,000, and GameStop (GME) is up 26%, exuberance is bubbling. 

Calm on the Surface… Granted things are looking a bit more exciting this afternoon as equities are finding their footing, but this morning’s choppy trading around the unchanged mark might’ve suggested there’s not much going on for the market to digest. An ongoing (second) impeachment vote, several Fed speakers making comments, President-elect Biden scheduled to reveal details of his stimulus plan tomorrow: these are things investors have grown accustomed to coping with coolly. Still the S&P intraday chart masks the underlying churn, as markets are seeing a bit of a reversal of the reflation/rotation trade that’s been in focus recently. Tech has wrestled back a spot at the top of the sector charts (NYFANG +1.2%) along with more defensives Utilities / Real Estate, while Intel (INTC +7.6%) is chipping in to help Semis after replacing its CEO with VMWare (VMW -7.2%) CEO Pat Gelsinger. Target (TGT -0.9%) also a splash this morning announcing a holiday sales blowout, but with expectations already so high the news received little reward (though XRT +0.2% is pushing for yet another ATH). On the flipside it’s the value/cyclical sectors that have popped recently that are lagging today: Banks, Materials, Autos bring up the rear.

Turnaround Tues… – Well perhaps not quite. It seemed like we were set for the typical BTP-bounce back this morning but the broader market hasn’t played out that way. Cyclicals have held firmly onto the torch today after various members of the FANG world (Amazon, Netflix and Facebook to name a few) hit 3m relative lows yesterday. The 10-year yield hitting its highest in 10 months (target still 1.5%) has spurred banks, themselves appearing on 3m relative high lists, just in time for investors to decide if this is much ado about nothing (earnings Friday). Crude also made 10m highs yesterday and that trend carries on today, the sector capitalizing on the underlying commodity’s strength. But it’s autos that are miles ahead of the pack, and it’s just because Elon tweeted something clever! Instead, Aptiv is ripping after their performance at CES yesterday as it attempts to be the main brain behind autonomous driving. With the move higher in yields however, telcos and utilities are lagging significantly. Could a change in market leadership finally be coming? A stimulus package in the offing (details expected this Thursday), higher rates and stretched valuations from the growth/Mo crowd suggest it just might be.

If You Like Pina Coladas…Just a week in and already thinking of an “Escape” from this glacial, Northeast terrain? You are not alone. The good news is 2021 is quickly shaping up (unlike our decrepit physical bodies) to be anything but bland, and should continue to befall us with a number of high octane moving parts throughout the year. We’ve got gadgets and gizmos of plenty, potential melt-up risk galore. You want asset bubbles? We’ve got twenty! But who cares…no big deal…we want mooore….stimulus (Name That Tune is back on TV, fyi). Either way, today is being passed off as a pause for breath with tech bearing the brunt of the losses. There is very real potential for heavily enhanced regulation of big tech after the storming of the Capitol was planned and discussed on social media. Twitter is down 5% after banning President Trump’s personal account, citing the risk of further incitement of violence. But again, today’s move is merely a cooling off. The signs of exuberance are not fading away and as long as the Fed is engaged, why should they? Clarida’s comments last week eased concerns around Fed tapering, and Brainard and Powell speaking this week are unlikely to rock the boat as well. Much is being made of yields and $ rising, but perspective is key: The UST 30-yr is still only where the 10-yr was this time last year (and most of major sovereigns are negative yielders); Equity TINA is still not at risk yet.