Doing What They Do Best. You probably guessed “they” as quite a few things here – investors buying, tech rallying, Fed manipulating…correct by all accounts. Tech is leading the charge once again today as investors (according to the BofA survey) have now gone from believing we are “in a recession” to  believing we are in “early cycle.” The power of The Fed is on full display as per the S&P currently on track to set a new all-time closing high. And the power of Apple (+3.5%) is on full display as the Nasdaq rallies yet again. However, retail has had quite a day after Kohl’s got destroyed and WMT warned that lack of stimulus would take a toll on the consumer. Q2 was the height of reopening / recovery but might as well be ancient history at this point. Either way, the S&P and Nasdaq don’t seem to mind.

Et tu Warren? – After a middling week for the techies, they’re back doing what they do best, namely residing in the green. The watch for Apple two trillion persists ($467.70) and the Nasdaq 100 leads the way as it nears a new all-time high (see graph below) and the S&P sits just off a new ATH for the first time since February. We seem to have witnessed our most recent value/cyclical head fake again, banks and travel/leisure names lagging significantly. The money institutions can “thank” Mr. Buffett for their selloff today, news of cutting back his position in a host of names behind the move. Meanwhile, the Oracle seems to have decided, if you can’t beat ‘em, join ‘em. He gave the gold bugs a boost after capitulating and announcing a stake in Barrick Gold. Semis piggybacking Nvidia’s move (+6.9%) after some analysts up their PT ahead of Wed earnings and General Motors (+7.8%) after a broker suggested they could spin off their EV unit.

For the Love of Money – The current stalemate in stimulus is weighing on a few things –like American’s psyche, wallets and sentiment. Apparently, it is not weighing as heavily on the stock market as one might think today, though. After a weak day for European equities and lower futures pre-open, US indices could have folded hard —especially as the Senate will remain closed for any further decision-making until September 8th. However, the value trade has played out thus far as autos, banks and energy have outperformed, while the tech gang has fallen short (Nasdaq weaker). Retail has been of separate interest as a 1.2% rise in retail sales in July has helped Macy’s (+6%), Kohl’s (+4%) and Nordstrom (JWN +5%) get a much needed boost. One other name of note – DraftKings (-7%), the online gambling co that has suffered from the cancellation of pro and college sports leagues (smh). That said, if you want to see Redburn’s deep dive on the value of these names, please ask!

Going for it – After failing to get through the magic mark of 3386.15, the S&P is giving it another shot today.  As has been the trend, it is the mega tech that is helping with this push.  And to punctuate that impact, Apple (+2.1%) is just 1% away from hitting a $2trln market cap.  But even with the mega tech strength, the second best performing sector is Retail (XRT +55bps).  Looking at the constituents, it’s easy to see that the Covid beneficiaries are driving its performance (Overstock, Etsy, Wayfair, Stamps).  Banks once again are underperforming, even as Treasury yields are moving higher again (see below).

To Be or Not to Be – A genuine rotation that is, seems to be the question on everyone’s mind. A 3-day losing streak for big tech accompanied by a curious slide late yesterday furthered the thought but the 2020 darlings responded with a resounding NOT SO FAST today. Yesterday’s move did highlight the crowded nature of a # of trades and what we can expect if/when investors become inclined to unwind. Continued talk of a stalemate in Congress and postponing of college football (a clearer sign the pandemic is far from over) will test this rotation as it remains in its nascent stages. The key level to watch here is the S&P Value ETF June relative high. It remains a bit away from current levels and its only a short term level really; net-net, we’ll need much more confirmation before the rotation becomes a reality.

Going Streaking… A good ole’ fashioned risk-on session has the S&P knocking on the door of a new all-time high, as well as its first string of 8 consecutive green days for just the fifth time in 10 years. Rotation is again the word of the day, with Cyclicals/Value powering higher and Tech/Defensives making up the bottom of the sector table on word of Russia’s “approved” Covid vaccine. Some signs of caution are showing through the early morning exuberance however, as some of the highest-flying Travel & Leisure names have been reined in and Software/Media have recovered to help the Nasdaq muscle its way back towards positive territory as it tries to avoid its first 3-day losing streak since March; perhaps some hesitation is warranted given the questionable nature of the vaccine news and the fact that Trump’s proposed capital gains taxes remain up in the air. Still, the 10-year Treasury yield has remained at multi-day highs, receiving an extra boost from warmer than expected PPI data. Gold is unable to shake its weakness, with profit taking instinct overshadowing the early signs of inflation.  

Summer Snooze… A busy weekend of news but a somewhat sleepy response from the US equities feels about on par for mid-August, especially as earnings wind down. Futures hanging in the green this morning despite the continued simmering of US/China tensions shows the saga remains in the backseat relative to the virus recovery story, but Tech continues to show signs of fatigue just as its carried the S&P to within a stone’s throw of its all-time high. Accordingly Software, Media, and Semis have been among the worst performing sectors throughout the morning, and are responsible for the S&P’s brief foray into the red (Nasdaq still lagging there). That’s left investors to once again rummage around the value/cyclical bin with Transports, Industrials, and Banks all outperforming along with Energy which is getting a boost from Crude strength after Saudi Aramco presented an upbeat picture of improving demand. Small-caps’ mojo has also rolled over from last week’s performance that saw the Russell 2000 gain +6% (IWM +1.2% today) and clear the crucial June high. Still, perspective is important, and despite the signs of rotation over the last 2-3 weeks it’s too early to say the longer trend of growth/Tech outperforming the S&P while small caps/Value underperform has seen any meaningful change. See the chart of Nasdaq 100 and Russell 2000 Value Index both relative to S&P below:

Surprise Spoiled… President Trump’s “prediction” came true, but despite a “big” July NFP number this morning, US indices find themselves trading modestly in the red into the afternoon. Perhaps elevated expectations cued up by the improved ADP payrolls yesterday did take some of the shine off NFPs, but speculation that the improving jobs picture might further solid the Congressional stalemate of further unemployment relief (the two sides are reportedly remain far apart amid on meeting ongoing now) has also created reason for pause. Trump’s latest TikTok/TenCent targeting has US-China tensions in the mix as well, though the S&P clinging to most of its over +2% weekly gain suggests the back-and-forth is still a clear second fiddle to the virus/recovery narrative. Transports top the sector table with UPS (+7.3%) and Fedex (FDX +6.0%) leading the charge on word they are planning to raise holiday shipping fees as deliveries surge; otherwise Banks / Insurance are doing a bit of catching up, while Tech/Semis are taking a well-deserved breather, while Gold, Oil and Copper all give back some recent gains. Of course should a stimulus deal announcement come through before 4pm, things could be looking a lot rosier heading into the weekend…

Cautious, even if green – Heading into Friday, traders are treading carefully after four days of gains in equites.  Congress is still working on their stimulus plan, plus the Nonfarm Payroll data will be reported. Yes POTUS has pointed to a big number, and today’s jobless claims were better than expected (1186k vse 1400k), but the ADP miss Wednesday is still a reminder that this recovery is a work in progress.  The safety trade in Tech (led by the mega caps) is pushing that sector to the best performer list, and also pushing Facebook (FB +5.9%) to a new ATH.  Transportation stocks are also doing well, led by Kansas City Southern (+5%) as it appears a deal for them by Blackstone is getting closer.  On the losing end is Healthcare, getting hit from Becton Dickinson (-8.7%), ResMed (-12.5%) and Dentsply (-7.6%), all of which reported earnings. US treasuries are also ticking higher, with the yield touching 0.5019% for a brief moment.  Investors playing it safe into a potentially volatile Friday.

Forward March… US stocks are on a roll, with expectations that Congress will eventually strike a deal on further unemployment benefits aiding the S&P in its quest to go 4/4 on green days dating back to last Thursday’s mega-cap earnings dump. Somewhat of a different flavor to the rally today with Materials, Cap Goods, and Banks outperforming while Tech/Semis takes more of a backseat (though DIS +8.8% after its earnings has worked its magic on the Media space). Unsurprising given value has been the usual victor on vaccine news flow days (more on that below), but that hasn’t stopped the Nasdaq from eyeing a new ATH as well. The optimistic tone has the 10-year Treasury yield continuing to edge higher after notching multi-month lows, also buoyed by word the US Treasury plans to increase auction sizes for longer-dated bonds. Oil and Copper are also nudging higher, while Gold continues to soar after cracking 2k yesterday.