Deep Breaths… If yesterday was a “pause for breath” after a whirlwind start to the week, today feels like the first exhale of some of the vaccine cheer that’s been a boost to equities. With virus cases quickly heading in the wrong direction, shutdowns (partial at least) looking inevitable this winter, and any vaccine distribution plan lacking medical and logistical finality, there are plenty of near-term clouds obscuring investors’ view of a sunnier 2021. What began as a mild pullback this morning has become a bit more exaggerated, with Powell failing to save the day with anything new in his comments at the ECB forum, only reminding that the next months will be “challenging.” The ball is still in Congress’s court in terms of stimulus, but the only movement on that front was the White House announcing it will leave the House / Senate to get negotiations going again (apparently the WH is busy with “other things”…). All the above has led stocks to continue to fade into the afternoon. Defensive sectors Healthcare and Food Retail have been the best of the worst for most of the day but now Media has taken over the top spot as the usual winners get some of their mojo back (relatively speaking). Consequently Banks, Autos, and Energy are back in their usual place in the basement of the sector table. It was fun while it lasted? The debate continues…

They Can’t All Be Like Yesterday… The way the week started off, you half expected to come in today and hear that a Brexit trade deal had been negotiated and that Congress passed a stimulus package… But alas, US equities are once again subject to gravity after flying higher on Monday. Still that hasn’t stopped rotation game from being played (VLUE +1.3%, MTUM -1.2%), just not nearly to the same extent as yesterday’s frenzy. Tech/Semis are the laggards again, with an extra drag from Amazon (AMZN -3.0%) staring down EU antitrust investigations. Joining them in the red today is Banks (+13% yday), bringing into question how far any “Great Rotation” will carry the battered sector. Monday’s other big sector winner, Energy (+14% yday) is also cooled off a bit but remains in positive territory. Industrials are leading, namely Autos and Cap Goods (Boeing +5% as it reportedly nears 737 MAX approval). Transports are also outperforming, but that’s thanks to freight names (CSX +3.7%, KSU +2.3%) carrying the load as airlines come down from their vaccine high (AAL -4.1% after being first to pull the trigger on a stock offering). With the S&P pretty much unchanged and the 10-year Treasury yield still hovering around yesterday’s highs, the market can’t be accused over letting too much of yesterday’s jubilance slip away yet, but the big question is whether the party will last or start to fade into year-end…

Resolution Reaction – We do have a winner, but this feels far from over. No doubt there will continue to be a slew of headlines over the next few weeks, calling the results of the election into question as President Trump has offered little indication he is prepared to concede defeat. Further, Trump has also refused to commit to a peaceful transfer of power. Both moves would be historical firsts, but most likely not all that surprising to market participants. Whatever your political alliances, the markets are behaving in a way that suggests investors are quite happy that at least the bulk of uncertainty is behind us. However, the election results pale in comparison to the market’s reaction to Pfizer (+11.2%) and BioNTech’s (+14.6%) vaccine progress announcement this morning. The headlines gave the markets quite a jolt, reversing the fortunes of pandemic losers such as travel companies (Carnival +37%), retailers (Kohl’s +17%) and banks (JP Morgan Chase +13.5%). On the other hand, virus related beneficiaries are seeing a decent pullback. See: Zoom (-13%), Peloton (-15%), and of course, Netflix (-6.2%). Value is outperforming Growth by 4%+ and the Russell, with its broader contingency of US economic sensitive names, is making new YTD highs. Also, JNK is loving it. second best day in 10 yrs for JNK US. (New total return high last week already.) Further, the 10y has jumped to 0.954% from 0.821%, crude is up more than 8.5%, and the safety trades – Yen, Gold, and Bunds are all enduring the opposite of risk assets. Ain’t no stopping the bull run now…..except maybe a hefty dose of reality…

Let’s Never Do This Again… Well it appears that investors ready for the weekend… After a looong week that saw the S&P notch 4 consecutive gains of over +1% (first time since 1982), today’s session feels like a bit of a pause for breath as investors as investors regather their bearings. At the moment, Biden looks all but certain to lock up the presidency, while the fate of the Senate may need to be decided by two runoff elections in Georgia in January (but still looks good for Republicans). While indices are little changed on the day, trading has still been choppy (vols +20% vs 20-day avg) as political headlines are still managing to keep jumpy traders on edge despite a conclusion nearing. Semis have also refused to calm down, with SOX making a new all-time price and 12-month relative as Microchip (MCHP +5.2%) earnings impressed last night. Telcos are also enjoying an earnings glow with T-Mobile (TMUS +6.0%) dialing up a beat and smashing expectations for costs savings from its merger with Sprint. Value sectors are dragging once again after their joining the party yesterday: Energy, Banks, and Autos are all among the worst performers. While there’s no doubt the election litigation will drag on for weeks, hopefully by Monday the market’s focus can return to the prospect of stimulus…

Everyone into the pool – Votes are still being counted, and lawsuits are flying, but markets are still reacting as if a quick outcome will occur.  What is known though is that no Blue Wave is coming.  That realization yesterday forced a quick move away from those perceived winners (Industrials/ Banks/ Material), and back into the YTD leaders (mega tech/ Semis). The approach today is more all-encompassing, with yesterday’s losers leading.  Materials/ Metals are +5%, Banks +4.1% and Transportation +3.3%.  Homebuilders are lagging (ITB +16bps), but they were up 5% Wednesday.  As the Value guys play a little catch up, mega teach and Semis are also performing.  Earnings from Qualcomm (+13.4%) and Qorvo (+7.7%) reminded the market again why the sector is +34% this year.  If the major equity indexes were testing their technical levels Monday, they are above them now, and even the Russell 2000 is at an 8 month high. 

About Last Night… Look this has been fun, but maybe it’s best if we end things? The market is taking it all relatively well (VIX still sitting below 30) considering the election night surprises and lingering uncertainty, and indices have extended gains post-EU close (but are off their highs). That comes as vote counts continue to trend well for Biden, who is now carrying narrow leads in both Wisconsin and Michigan, where he could be declared the unofficial victor as soon as this afternoon (going a long way to sealing the deal even without PA’s help). What is more concrete is that Democrats’ hoped for Blue Wave is not going to materialize, and whoever is President will be dealing with a split Congress. The promise of a Republican Senate has prompted a strong tide of rotation rewind as investors adjust expectations for a skinnier stimulus package (MTUM +5.0% vs VLUE +1.1%; QQQ +4.8% vs IWM +0.4%,) — still stocks have gotten an extra bid over the last few hours as Senate Leader McConnell promised a stimulus deal would be “top priority” when the body reconvenes next week. Tech / Media / Semis are all outperforming amid the return to growth / winning trades; in addition, reduced concerns of reform / regulation are helping Big Tech as well as the Healthcare / Pharma names. Treasury yields remain under pressure as the political rollercoaster certainly hasn’t come to a full stop, but the 10-year yield is only back to the range it occupied last week. It may be days before all the votes are finally tallied (and then expect some recounts), but if they’re all days like this, the bulls are fine with that.

One. More. Day. We are more than ready for this to be over. Both 2020 AND The presidential election. Of course, it may be more than just one day until things are official. Further, the financial implications of the outcome might not be as clear cut as many expect. If the popular narrative of a “blue wave” comes to fruition, we most likely see a weaker dollar, recovery in value stocks and a steepening yield curve. But there are a few other potential outcomes: 1) a contested election which would cause more than a little uncertainty and disharmony – UGGHHHH, 2) A “gridlock” scenario with Biden White House and Republican Senate. The Senate would then act as the last line of defense vs fiscal deficit spending and endanger the market’s anticipated multi-trillion dollar stimulus expectations for Q1. Or 3) Trump repeats a 2016 shock victory. In that case, the Fed policy will be easy, no matter who is in The White House. Also, speaking in strict market terms—according to Macro Man, the performance of the stock market in the first year after a presidential election is pretty indistinguishable, regardless of whether the incumbent party retains or loses power. The returns in one year have been generally pretty good over the past 35 years. No matter what the outcome tomorrow, investors have had plenty of time to position for any of the above results. Perhaps today’s slight squeeze by the S&P and Dow is just further reshuffling. The usual suspects —tech/large cap/growth names are not feeling the same love. The Nasdaq is underperforming the other 2 major indices for once with Amazon (-2.8%), Apple (-1.4%) and Microsoft (-1.1%) well into the red, despite more than OK earnings last week. One thing to note — the SPX rarely closes down the day before an election, according to The Market Ear. That said, this year is unlike any other. Deep breaths.

Picking up the Pieces… Get knocked down, get back up again! Ok maybe it’s a bit premature to say that US equities are already moving past the absolute bruising taken yesterday (and Monday), but the market’s outlook is at least a little brighter today with a once in a blue moon mega-earnings slate on its way after the bell (more below). That optimism was a little shakier this morning, as futures pared overnight gains and slipped into the red at one point, but solid Q3 GDP data and jobless claims were enough to get the ball rolling again (along with some ECB commentary on a “recalibration” of stimulus in December), despite the fact the Covid second wave is clearly going to be an ongoing concern. Though backward looking, the data does seem to help the market feel better about the lack of pre-election stimulus – just for good measure US indices barely reacted to Trump’s mid-morning promise of “a very big package as soon as the election’s over” (that you Santa?). US indices are now at their sprinting higher heading into the afternoon, led by Tech and Media (again, earnings on the way), as well as Transports and Autos which are repairing some of yesterday’s damage as Ford (F +3%) and Aptiv (APTV +5%) both easily beat expectations. Pharma and Healthcare are lagging, with a disappointing outlook from Abiomed (ABMD -8%) the most noticeable culprit. Energy is faring well (Exxon higher by +3.7% after announcing job cuts) even as Crude continues its tumble – it’s especially interesting to note as many pointed to Oil early in the year as an indicator of the Covid damage that would come…

Risk off! Stimulus negotiations seem to be done for now (without an agreement), earnings are in full swing, the Presidential election is five days away, and two of Europe’s largest economies are moving towards lockdowns.  One of those generally can halt investors, but all occurring at the once are making investors rethink their risk profile.  Risk assets are getting hit hard across the board, with Oil -6%, Silver -4.7%, Equities -2.8%, and “safe” havens Treasuries/ Dollar moving higher.  In equities, the pain is across the board.  Insurers are the best sector (only down 1.2%), while industries exposed to lockdowns are underperforming (Hotels -3.4%, Airlines -4.3%).  While the tape is very red, it is interesting to see the Value down less than Growth, by about 72bps (SPYV -2.53%/ SPYG -3.23%). 

Back on Your Feet…. It’s not quite a Turnaround Tuesday, but US stocks are holding their own in the aftermath of yesterday’s bout of repositioning. A full slate of earnings and some M&A developments have provided a handy distraction for investors with only a week until the election and stimulus still a question mark, though trading has been choppy and the S&P hasn’t strayed too far from its flatline in either direction. It’s not surprising the buy-the-dip crew is sitting tight for the most part given the timing, but it remains to be seen if the mega-cap earnings ahead force investors off the sidelines. Already the big guys (AMZN +2.1%, FB +2.3%, AAPL +1.1%) are showing some subtle signs of FOMO today as NYFANG+ makes a new relative high vs SPX (chart below) and with MSFT (+1.9%) set to dish after the bell (why did they have to spoil the perfect 5/5 FAAMG lineup on Thursday?). After all, yesterday’s SAP blowup was a reminder of 2 things: 1) There is no alternative to the US, and 2) Covid isn’t going anywhere… So it’s easy to see why some are convinced the winners will keep on winning (notice PTON +2.3%, ZM +1.4%, DOCU +1.2%)