Already Mid-Madness… The NCAA College Basketball tourney has just officially tipped off, but March feels like it’s already seen plenty of Madness thus far. Relatively speaking today actually feels pretty calm, at least when compared to some of the wild “yield anxiety” driven days we’ve seen this month (aka yesterday’s Tech wreck). Treasuries have been stable throughout most of the day apart from a brief pre-market dip on word the Fed won’t extend SLR relief, but given the announcement has been somewhat expected the news only delayed Tech’s inevitable mini-bounce into the weekend. Banks, however, have had a tougher time shaking off the Fed’s crackdown and the sector is giving back some of the multi-year highs it notched yesterday. Along with Semis / Media, Energy is also rebounding from a rough Thursday as oil cleans up some of the spillage that’s made this the worst week for the commodity since October. Notably negative among the FANG outperformance is Software, which is being held back by Visa (-5.0%) after the DOJ announced an investigation into anti-competitive behavior around fees (MA -2.5% as well). Overall an understandable pause for breath to end a busy Fed week, but with the 10-year yield looking like it’s destined for 2%

No Change… FOMC decision is out and of course rates remain unchanged near zero as does the current rate of asset purchases. Equities are applauding as the median dot plot still shows rates on hold through 2023 (though 7 members now see a 2023 hike vs 5 back in December) and Fed forecasts show core inflation right around their target for the next 3 years (aka anything higher is “transitory.”) The statement has also been tweaked to acknowledge that recent economic data has been more optimistic for the recovery. The S&P is trying to remain green though Treasury yields have bounced back to where they were pre-announcement (DXY falling too).  A good job of threading the needle of recovery vs inflation / tapering but we’ll see if that remains the case when Powell is done answering the coming barrage of inflation questions…

Great Expectations?…Tweet of the day goes to whoever pointed out “A year ago today, you could’ve bought Tesla at $89/share. Instead, you bought 264 rolls of toilet paper and 50 bottles of bleach.” Ughhh. That aside, nearly everything has been working in the stock market over the last week with the S&P trading at ATHs. But the S&P, close to extreme overbought territory (as shown in the chart below), isn’t feeling all that fresh today. Markets were well bid from the off, trading decent overnight, the stimulus cheques in the mail and the world’s biggest asset manager saying the size and speed of the rebound is not yet being appreciated. However, markets have been soggy all morning as Tech came off its highs and oil declined. Not many catalysts of note, but plenty going on in in the Autos space with Volkswagen (+7%) back above Dieselgate levels as they unveiled plans to dominate the EV market over Tesla (-2.5%). Volkswagen Ords have seen a 35% move in the last ten trading days vs a +17% move in the more liquid Prefs over the same period. Lots of speculation and second guessing as to what is going on there but not many firm answers. Energy (XLE) is finally taking a bit of a breather -2.6% and the Financial sector has also taken a back seat for the time being. One other thing being watched is how the semis act around the 50-day moving average as a leading indicator for the broader market. Note, the Philadelphia SOX index managed to re-take its 50-DMA yesterday and so far it’s holding above this level today. Today’s Retail Sales report for the month of February missed estimates by a wide margin, so all will be watching tomorrow’s economic data on Homebuilder Sentiment, Building Permits, and Housing Starts for telling trends. Obviously, tomorrow’s Fed meeting won’t be a “live one” from an interest rate or QE policy perspective, but expectations are all the current rage.

Check’s in the mail – Stimulus has been a very important part of the US investor story and checks are finally hitting accounts.  How those checks will be spent remains a question, but it is safe to assume that a lot will end up in the equity markets, especially as the S&P sits near its ATH.  Yields are taking a breather from their ascent, and this is impacting the sectors that have become attached to them.  Energy and Financials are lagging (down 1.5% and 1.7% respectively), while Consumer Durables (+2.1%) outperform, getting help from other potential homes for those stimulus checks (Under Armour +3.7%, Tapestry +3%, Nike +2.9%).  After a late morning sell-off, the S&P is back at the day’s high (3949), and more sectors are turning green. 

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.