Hit by a Semi – After the strong performance yesterday by the broader indexes, stocks today had been in a holding pattern, with the S&P 500 trying to add.  The 10-yr UST has moved lower (1.66%), and sectors that are yield sensitive performed accordingly (Homebuilders leading (+71bps), Banks lagging (-26bps).  But Applied Materials (-3%) made things interesting this afternoon after providing some long term guidance at their investor day.  Seeing FY eps of 8.50 on $26.7bn in revenue, the stock quickly traded lower, bringing the broader sector with it.  AMAT and the SOX are trying to rebound post comments, giving traders something to watch when overall market volumes are down about 13% versus the 20 day average.  Perhaps the quick cautiousness from investors should not be a surprise given overall equity positioning, but Semicaps should be able to weather some of that since TSMC’s $100bn capex announcement should provide a tail wind.

Roaring Back… It’s been an understandably quiet start to the week with European markets closed and many taking extra advantage of the long weekend, but things are far from static as stocks are soaking in the signs the US recovery is the real deal. Of course Friday’s blowout NFP print created some pent-up enthusiasm that’s now getting released, but more positive eco data this morning along with data over the weekend showing vaccine rollouts and economic activity like air travel picking up steam have added to the positive vibes. With Treasury yields holding steady, just about all S&P sectors are green though that’s left Banks as relative underperformers. Energy is the true exception, sinking lower as crude gives back its gains from last Thursday as traders take a second look at OPEC’s plan to ease supply curbs and some countries (India and France in the headlines today) struggle to get a tight grip on virus cases. NYFANG (+1.8%) is cruising higher, with Tesla (TSLA +5.2%) impressing on Q1 deliveries ensuring Autos is atop the sector table.    

No Fooling Around – If I told you last April 1st that a year from now the market would not only have recouped all of its losses but would be UP 18% from its previous all-time highs, you would’ve thought it was the dumbest April Fool’s joke ever. Not to mention not all that funny. But here we are. And equities aren’t joking around to kick off Q2 either, semis leading the charge for a second straight day giving growth a solid head start on value. Micron’s solid earnings along with a report in the WSJ about memory consolidation as well as Taiwan Semi announcing an eye-popping $100bn capital spend all helping the space. Most of the big tech names are joining the party but Apple’s inability to join the fray may suggest stock-picking might be a bit more discerning going forward. Value may be lagging but its not necessarily for sale (nothing is really) – energy leads that portion of the market, going better after OPEC+ agreed to making production increases at a more gradual pace. It had its best quarter vs growth in 20 years – it’ll be a big ask for that to continue.

This is the End… I think we all knew deep down that the strangeness of 2020 wasn’t going to simply fade away with the flipping of the calendar. Capitol riots, Reddit stonks, NFTs “worth” millions, beached cargo ships, oh my! Given all that’s happened these first 3 months of 2021, the action today feels like a bit of a dull sendoff to Q1. Naturally markets are shunning the Rotation trend that defined trading in the quarter, perhaps unsurprisingly given rising yields have been behind most of the recent “excitement” and much-advertised rebalancing finally seems to be kicking in some support for Treasuries (at least for today). Still that’s put some impressive green numbers on the board, with FANG / Tech taking advantage of the moment to put in a solid rebound performance (NYFANG +2.1%). On the flipside, cyclicals / Value are taking a breather (Banks / Energy in the red) despite Biden’s big $2.25tn infrastructure bill announcement coming after the close. It’s a rare example of a good narrative taking a back seat to the “already priced in” mentality, but the holiday-shortened trading schedule this week is also curbing any appetite for risk as traders will be unable to react to Friday’s NFP report.

More Q’s than A’s…Perhaps a bit of window dressing going on in Europe before tomorrow’s quarter coming to an end, but the same can’t currently be said for the US. Although US indices are attempting a reversal out of red as I type, volumes are meagre and things still feel unsettled from the Archegos fallout that has yet to be completely quantified ($10bn hit to banks speculated). Either way, the very banks who were burdened yesterday, are benefitting today (WFC +2%, GS +1.6%, MS +1.5%) as each one raises their hands to say “not it.” At the same time, March consumer confidence exploded from 90.4 (revised lower) in Feb to 109.7 in March – the highest since March 2020, helping classic reopening plays benefit (American Airlines (+2.1%), United Airlines (UAL +3%) and Carnival (+3.3%) are all spiking). However, there has been no tapping of brakes on the reflation trade. Vaccine rollouts / infrastructure bills / inflation coming: none of these narratives are new, but their pull is simply too strong for yields to sit still for long. The 10-yr is still below the 2% level at 1.721, but that feels like a magnet at this point. It’s a tale of two stories for yields – fear of inflation vs. optimism about the economy, and it seems the latter is winning as investors see rising earnings growth expectations, historically low corporate borrowing costs and pent-up consumer demand. The spotlight is now leaning towards NFPs on Friday, but in the meantime we can expect some quarter-end rebal swings and an update from President Biden on his infrastructure plan. Still a lot to digest before Peter Cottontail struts into town.

Bend Don’t Break… US indices were modestly red through the morning but nonetheless there’s been a collective sigh of relief as it seems the fallout from the “once in a decade” series of margin calls on the highly-leveraged positions of Archegos Capital Management will be relatively contained. A few prime brokerage banks caught up in the mess are smarting today as they work to minimize their own damages (GS -1.4%, MS -3.0%, WFC -3.5%), but given how “on edge” investors have been with stocks at ATHs, many are glad the saga doesn’t seem to carry wider systemic ramifications. That relief has picked up into the afternoon, and now even the battered Media space has turned green, with broker upgrades to Facebook (FB +2.6%) and Twitter (TWTR +2.2%) covering up for continued weakness in the names at the center of Friday’s drama (VIAC -6.2%, DISCK -1.2%). The reflation trade appears to have the day off to start this holiday-shortened week: the 10-year yield remains relatively well-behaved right around 1.7% as quarter-end rebalancing provides some much-needed support for Treasuries. Energy joins Banks/Financials in taking a breather near the bottom of the sector table, even as as crude remains positive in the face of reports that the Ever Green cargo ship has been refloated in the Suez Canal. Defensives fill in the top spots, with Utilities, Household Goods, and Telcos all outperforming. All the choppiness hasn’t stopped the Dow from challenging for a new closing high, as Boeing (BA +2.3%) is carrying the price-weighted index higher on back of an order for 100 737Max planes from Southwest Air (LUV -0.4%).

End on a High Note… After a choppy week that saw a growing lack of conviction start to stir up some small signs of panic, US equities are following on from yesterday’s vaccine optimism and riding the Reopening trade into the weekend. The S&P is now positive for the week as Materials, Transports, and Energy outperform (crude climbing again as no progress has been made to clear the Suez Canal), and renewed risk appetite is helping small caps (IWM +0.4%) partially rebound after a painful few days. Semis are somewhat surprisingly the best performer as chip shortages continue to raise headlines – the SOX is now +1.1% for the week. Banks were previously leading after the Fed announced a loosening of restrictions on dividends and buybacks after June 30th, but the sector has stepped back as yields have retreated through the morning. Autos (Tesla) and Media are the laggards following the usual reopening trade mold.

Rotation Response… There’s been plenty of questions as to whether the Rotation trade’s recent “pause for thought” was turning into something more sinister, as yesterday’s action suggested conviction could be waning. But at least for today markets are back in familiar form, with Cyclicals (Energy, Transports, Cap Goods) leading the way higher TMT (Tech, Media, Tesla) act as a drag on the Nasdaq. More booming eco data is helping drive the reopening narrative (more below) and of course Treasury yields behaving is helping to keep things civil – better demand on today’s 5-year auction assuaged any immediate fears of a repeat of last month’s lackluster 7-year auction that seriously spooked investors. Crude has continued to recover most of yesterday’s plunge despite word that traffic through the Suez Canal should resume flowing today or tomorrow. S&P Semis are managing to stay in the green despite lukewarm reception for Intel’s (INTC -0.5%) plans to expand its manufacturing capabilities.

Risk in Reverse – The calendar is still a few days away from quarter end, but markets today are seeing some risk unwind of the popular positional trades.  Yields have moved lower and the 10-year yield is sitting at 1.649%, the dollar has strengthened (watch the Aussie 100 day at 0.7610), the Russell is lower by another 2.3% (both growth and value down), Mega tech is higher (thanks to its correlation to yields).  Utilities are the best performing (+1.4%) followed by Staples (+75bps), while Metals (-4.3%) are worst.  That last sector is down on talk that China may release some commodity reserves to offset price strength.  Also in commodities, Oil is -6.5% and just fell through its 50 day moving average (58.45), and next support is at $55.  Today’s risk off is far different that the one seen last March, when the S&P 500 closed at 2237.  Seems pertinent that Powell is testifying with Yellen on the anniversary of releasing mega monetary support. 

Market Madness… The NCAA College Basketball tourney is in full-on “madness” mode, with a few heart (wallet) breaking upsets already on record. But, the markets are also suffering some upsets of its own. Having tread water overnight, the US cash market open sparked a major rotation into big-tech (growth) and out of value (Small Caps), as rising COVID cases dampened some of the reopening enthusiasm (looking at you, NJ). The modest drop in Treasury yields (10Y down a few bps) apparently triggered the resurgence, erasing Small Caps recent outperformance, while the Nasdaq surged 1.5%. The Dow is faring slightly better than small caps, up 30bps, but cyclicals like Boeing (-1.2%), Goldman (-1.5%)  and JPM (-2.5%) are holding the blue chip index to modest gains. The S&P is 0.85% higher, but its sector split is a good indication of the day’s progress. Most of the sectors are higher, but the leaders are the big gun mega-cap tech names with XLK Tech Select in the lead (AMAT +5.3%, KLAC +4.4%), followed by Communication Services and Consumer Discretionary. Financials and Energy are at the bottom. Kansas City Southern (+12%) is the biggest S&P gainer after it agreed to be bought by Canadian Pacific. In terms of data, existing home sales rebounded in January, but were expected to slide in February as interest rates rose, and they did, dramatically. Against expectations of a 3.0% decline, existing home sales plunged 6.6% MoM in February (January’s +0.6% rise was also revised down to a 0.2% rise). So it seems from this weekly data that the housing market remains red-hot, but the higher mortgage rates, which remain ultra-low by historical measures, have already started dialing down the heat. The bond market will remain in focus this week amid a bevvy of auctions and moves by The Fed to let the bank capital exemption lapse. At this point, it feels almost mechanical – sell this thing, buy the other, reverse, do it again…and again…and again…