When in Doubt… – Buy large-cap tech; that’s playing out again today. Amazon is today’s torch bearer of a still red-hot space after taking a bit of a breather last week. For those counting, the “retail” giant has increased its market cap more than $550bn YTD – even after hearing on a daily basis the strength of the FAAN(M)G’ers, the #’s are staggering. A slate of tech (MSFT, Intel) and retail (Tesla) earnings are set to come later this week. Today’s highlight and subsequent lowlight came via an initially promising report on the efficacy of AstraZeneca’s Oxford vaccine. The news was promising but data remains small as does the test cases – the stock faded but the overall market has held up ok, although the troubling divergence between the Nasdaq and Russell 2000 persists.

Cautious, kind of – With the earnings season just starting, and it also being a summer Friday, the tape has a defensive feel to it today.  Utilities (+1.9%) and Healthcare (+1.7%) are the top performers, while the Tech heavy Nasdaq 100 has been trading in the red all day.  The only reason why this is not a risk off day, is that US Treasuries have been trading lower as well.  Economic data was mixed this morning with Housing Starts positive, but Michigan sentiment dropped to 73.2 from 78.1  Next week will have 79 S&P 500 companies reporting (see below), giving investors another reason to pause.

A Horse Walks into a Bar – And the bartender asks, why the long face? Seriously though – on its face, you’d think the market would be enjoying a positive day with the balance of news being in the words of Gaylord Focker, strong to quite strong. Economic data on balance read well, with retail sales the star of the show, coming in well above expectations and nearing pre-pandemic levels. (Although a leg is about to be kicked out from this support) Jobless claims came in slightly above while continuing were below. We got a mix of sectors reporting today, with healthcare and banks being the highlights, the latter rounding up the week for the IBs. Again, the thrust of reports were positive, yet all indices sit in the red. One reason for the dour reaction? Despite a massive windfall for the reporting banks this week, they’re still prepping for a deluge of bankruptcies to come. The worst part? They don’t really have a clue how bad that’s going to be. Because of this, investor sentiment remains bearish (everyone hates this mkt remember?), but remember this usually serves as a contrarian buy indicator.

Viva La Vaccine… Hope is in the air and stocks are in the green, as encouraging preliminary vaccine data from Moderna (MRNA +5.3%) and similar optimism around the AstraZeneca / Oxford vaccine (AZN +7.3%) have sparked belief that help is on the way. Value is the victor thus far (RTY above its 200-DMA), with dreams of a post-Covid world causing investors to take another look at the spaces most beaten down by the virus (Hotel/Leisure, Transports, Banks outperforming). The “weighting game” is to blame for US indices being held at bay, as the big boys of Tech (NYFANG -0.4%) act as a drag along with Semis (SOX -0.6%) amid the rotationary action and as China tensions continue to boil up.

About That Earnings Clarity… Earnings season is officially underway and stocks can’t seem to make up their mind on what do, though that’s somewhat understandable given that yesterday’s confidence shaking afternoon fade remains a fresh memory and Banks have elicited a roller coaster response from their Q2 results this far. JPM (-0.1%) and Citi (-3.4%) initially looked to lead the space higher after Investment Banking revs came in clutch to save the banks’ profitability (WFC -5.8% not so lucky…) but both have since turned red and the sector is now the worst performer (more on that below). Otherwise though today’s action has a “rotation” theme to it with Autos and Materials outperforming along with Energy getting a bid ahead of an OPEC meeting tomorrow. Throw in China retaliating against Lockheed Martin (LMT -0.4%) over a Taiwan deal and the ever-flowing stream of virus news and you understand why uncertainty / fear have US indices treading water for the time being

If it’s Monday, equities must be higher – The last 9 Monday sessions have seen stocks close in the positive, and today is moving in that direction as well.  The FDA provided fast track designation to Pfizer (+5%) and BioNTech (+14.3%) today for their covid vaccine, and that has helping the Pharma sector outperform (Moderna +21% also helping on being added to the NDX).  But Tech is also keeping pace with FANG +1.8% and Semis (see below) benefitting from some M&A.  The broad sector gains have finally pushed the S&P 500 above 3200, and back towards 3233.  A close above that would put the pre-covid 3337 level in its target.  Even with the strength in equities, Treasury yields remain low (10-yr 0.64%), a sign that not all are believers in the strength of the economy. 

Topsy-Turvy: While the last number of weeks have experienced an overriding trend or momentum throughout, this week has been a bit harder to pin down. It’s alternated gains and losses, largely dominated by a tech space that knows no quit. Reports that China’s state funds were SELLING overnight after a clarion bullish call earlier in the week caught some off-guard. Add in some concerning market internals and US markets seemed preordained for a soft finish to the week. But a positive report out of Gilead on its much-heralded Remdesivir treatment helped markets reverse course. The dynamic at play seems to be, concerns about a recovery + increased COVID = buy the mega-cap techs. Hints at a possible cure/treatment/resolution/life back to normal-ish? Buy the value/underperformers. Ahead of what could be a severely ugly reporting quarter, banks were bid for, as were autos and energy. Carnival provided an update that if not supremely positive was bereft of negative and those names cruised on calmer waters. But these days of rotation have been less frequent and could be leading to an unhappy ending.

[Not Quite] Bloody Thursday… June 11th was almost a month ago, but the S&P’s -5.9% plunge that day has been on many traders’ minds (bears especially) ever since. While it’s felt like the rally has gotten back on track and the Nasdaq has successfully put that “Bloody Thursday” in its rearview (thanks Tech!), the S&P has not been able to regain the 3180-90 ground it treaded on June 10th. A fresh failed attempt today (intraday high 3179) momentarily spurred some fears of a repeat sell-off, but equities have regained their footing to trade modestly lower (Nasdaq green now). It’s no doubt a defensive day with Costco’s positive update (COST +2.9%) putting Food Retail on top and favorite hiding spot Tech in tow, while Banks, Autos, and Energy receive their daily beating. Semis are also turning higher in the afternoon after the CEO of Microchip (MCHP +3.5%) noted recent order growth.  But it’s hard to be too bearish when 4 of the “Big 5” are making new highs, and if/when the S&P does get over that technical hump it may be the green light the bulls are looking for to take on the ATH

New records continue to break, and its sounding like a broken record.  While Nasdaq has not created a new high today (yet), the same trade theme is present.  Buy Tech (Semis, Internet, Software), and underweight everything else.  Some are even comparing the Tech performance as a safety trade seen similarly in Gold and Treasuries.  Homebuilders are actually the best group today (ITB +2.9%), getting a push from low yields, and therefore an increase in Mortgage Apps (+2.2% w/w). Most sectors have bounced 65-85bps since the Euro close, except Materials (chemicals weighing) which have continued their path lower.  Conversely, in commodities, metals continue their move back to levels last seen pre-covid.  Gold we understand, but copper is now only 2.8% away from the January highs and is u/c ytd (is it getting caught up in the China bull market?). 

Going Streaking… 5 up days in a row for the S&P, 15/17 for the Nasdaq… stocks have been on quite a run of late despite all the virus threats to reopening, so a bit of a stumble today isn’t causing too much of a stir. Still it’s interesting to note the S&P keeps bumping its head around the 3182 level that marks where the index was before its downward gap on June 11. For all of the grinding higher that’s been done we have still yet to get back to the early June highs – though with FOMO still very much at play for those who missed the boat and summer volumes typically light, it sort of feels like it’s only a matter of time…