Freddie Mercury Was Right… “Nothing really matters, anyone can see…Nothing really matters, nothing really matters to the S&P-eeeee”. At least that what it seems like as we wrap up a chaotic opening week that’s felt longer than a half-speed rendition of “Bohemian Rhapsody”. The “Everything Rally” has more than picked up where it left off last year, and the list of indices that made ATHs on yesterday’s close (S&P, SML, RTY, MID, CCMP, NDX, SOX, TRAN) made clear that really means everything. While the party hasn’t completely stopped today, enthusiasm is understandably tuckered out at the moment (with some exceptions). Banks are taking a breather after a surging through the week, even as the US 10-yr yield has continued to push higher above 1.1%; same goes for Cap Goods names that earlier cheered the potential for greater infrastructure spending under a Democratic Congress. It seems even Semis are a bit tired, with Micron (MU -1.9%) now red even after raising its sales forecast. One notable exception that never seems to run out of gas is Tesla (TSLA +6.2%) which is driving Autos higher (I have a feeling we’ll be saying this a lot from now on) and helping ensure NYFANG (+1.7%) will finish the week well in the green.

Get out your Surfboard – The Georgia senate election had been on everyone’s calendar since November and it now appears markets will get a Blue Wave after all.  Exactly how much can be done remains the question, but the rotation occurring today is a hint as to where investors see the opportunity.  Rate sensitive financials (yields moving higher) are the day’s best performers.  JPM (+5.5%), BofA (+7.6%) and Wells Fargo (+7.6%) are just some of the highlights, and the performance is putting them on the Redburn 3 month relative high list.  Metals and Miners are also getting a boost (infrastructure spend) from US Steel (+18%) and Century Aluminum (+17%), while Industrials (+3%) benefits from Caterpillar (+6%) and Deere (+6.5%).  Even the Nasdaq 100 (-11bps), which was down 1.6% at the open due to its mega tech exposure (FANG -1.3%), has been pulled up by the broader outperformance from semi’s, retailers and leisure cos.   While there are still two hours of trade left, the S&P and Russell are in ATH territory, with Value ETFs outperforming Growth by 2.3%.

Lessons Learned… “Expect the unexpected”… Surely if 2020 taught us anything, that would be one of the primary takeaways. With that in mind, it’s not a shock to see investors treating the Senate run-off election in Georgia with caution despite the increasingly shaky consensus there won’t be a Democratic sweep. Yet US indices are attempting to make up some of the ground lost in yesterday’s bumpy ride (granted on near holiday-like volumes), thanks largely to Energy leading the way on back of WTI crude briefly rallying past $50 for the first time since February as OPEC+ reaches a deal on voluntary output cuts through March (XOP +9%). The positive start to year in terms of eco-data continues, as a solid beat from Dec ISM Manufacturing helped solidify the positive tone this morning. The gains also come as Value is outpacing Momentum names (VLUE +1.3% vs MTUM +0.6%), as a Democrat triumph would mean more stimulus spending (DXY lower again) and as the profit-taking action seen yesterday sees some follow through. The love for Cyclicals consequently has more defensive sectors on the back foot: Food Retail, Household Goods, and Telcos are all in the red.

A New Year Indeed – Christmas and New Year’s Day were beautifully situated on the calendar to offer a nice extended break so many of us may feel like we haven’t been in the seat for a while. For those that qualify, we closed an otherwise dreadful year with all-time closing highs in the S&P as well as the index’s Equal-Weighted and Total Return iterations.

The closing bell – It’s a quad witching expiry day along with a special S&P 500 inclusion, creating a super volume storm for traders (although most of that coming near the close).  The Tesla event has been well flagged, but that coincides with an estimated 90mln option contracts expiring (+24% y/y).  Once those have expired, taking some of the S&P gamma hedging with it, the broader indexes could have some breathing room into year-end (Nomura sees 38% of S&P gamma hedges removed today).  The S&P is currently sitting just below one of the main levels (3700), with Homebuilders (ITB +83bps) rallying for a second day.  Energy and Autos are the laggards, albeit that latter sector will get a nice bump when the new entrant arrives.  While the S&P and Nasdaq are lower, the Russell 2k is higher by 59bps, getting a nudge by growth (IWO +1%).  Stimulus talks are ongoing in Washington.

Plowing Ahead… Neither rain, nor sleet, nor a big blanket of snow (as has covered the US Northeast) can put a dent in the ongoing enthusiasm for stocks. Same goes for disappointing eco data, as jobless claims coming in at their highest reading since early Sept has only further fixated attention on the hurried stimulus negotiations in Washington.

Stuck in Neutral – A 14% year for the S&P would be welcome in any year, most definitively this one. But while we’re here setting new all-time highs, why not get that extra performance via the holiday seasonality before we close up shop, AMIRITE? That “effect” has yet to fully kick in and despite yesterday’s move signaling the sleigh bells could be in transit, it’s been a mixed bag thus far today.

Back On Track… It was beginning to look like a “here we go again” type of Tuesday, with equities again opening the day green and then beginning to fade, but US indices are now seemingly determined to snap the S&P’s 4-day losing streak (only the 2nd this year) as they push higher into the afternoon. As NYC battens down the hatches for an impending snowstorm, the bulls are charging ahead once again thanks to (what else?) progress on stimulus talks. To be fair, a deal does seem to be getting closer as the two-part deal garners wider support and Senate and House leaders are set to discuss at a 4pm meeting later today (need to save some optimism for another green day tomorrow). The one-track stim focus has brushed aside any concern around a lighter than anticipated Empire Manufacturing print (Nov Industrial Prod’n data was inline) and allowed rising virus cases and the threat of stricter lockdowns to continue to be treated as old news. “Technology” is leading the way among S&P sectors, but looks can be deceiving. NYFANG index is trading up +1.2%, but 8/10 names trade lower: the space is standing on the weighty shoulders of Apple (AAPL +4.2%) which announced plans to increase iPhone production and in lesser part due to Baidu (BIDU +10%) roaring higher on a report it will make its own EVs. Otherwise FB, AMZN, and GOOGL all sit in the red after the EU announced tougher anti-trust regulation on the tech giants (what else is new?) leaving Media and Software as underperformers (*update* of course GOOGL and AMZN pushed into the green in the last 45 mins). Value is putting in a decent showing, with gambling names carrying Hotel/Leisure, and Energy is following Crude’s recovery from early losses despite as less than rosy demand outlook from OPEC+.

Dickensian Distortion –Russell 2000 new all-time highs. Dow new all-time highs. Granted US stocks have pared gains since this morning, but it doesn’t seem as though investors are ready to part ways with 2020 markets just yet. Between the spending bill inching ever closer and the potential for vaccine success, there is still much to be done before funds close their books on 2020. Not to mention, the Fed, BoE and BoJ later this week. Further, the Nasdaq didn’t even blink at a report that tech giants could face fines by the EU of up to 10% of their revenues, and deal mania continues to bring the action. Today’s top: AstraZeneca (-5%) agreed to buy Boston based Alexion Pharma (+30%) for a cool $39bill. Also, Pluralsight rose 6% after private-equity firm Vista Equity Partners agreed to buy the educational-software maker. The semis are leading thanks to Marvel (+3.5%) after brokers raised their targets and the stock was added to the Nasdaq 100. The sector lagging is Energy, thanks to Oil, which slipped into negative territory after OPEC cut its demand forecast, but has just recovered to + 30bps in to the green. SandRidge (SD +21.5%) is the big name of note — 20% higher after announcing the sale of its assets in Colorado to an unnamed buyer for $47m. NBD.

Christmas Cranks – Markets have the vaccine, now it just needs some stimulus to get us through the winter.  The back and forth between parties in Washington continues, and that means no movement, not helping stocks for direction.  The major indexes are all trading in the red, just off their day’s low.  The last leg lower after stimulus comments that the two parties are still far apart.  As of now, the S&P and Nasdaq are about to finish with their first weekly loss since mid-November (have gained 2.5% and 4% since then though).  Despite the red backdrop, Consumer Staples (XLP +15bps) and Communication (XLC +26bps) are higher.  The latter group benefitting from the positive Disney (+14%) direct-to-consumer stats last night.  Leading on the downside are Energy (XOP -2.7%) and Metals (-2.3%), although they still are atop the 5 day winners.