Seriously? – As Johnny Mac would say, you cannot be serious. Well if you haven’t been paying attention, in 2020, anything and everything is possible (see today’s Meme for further proof). Equities went higher than the fireworks that colored the sky over the weekend. Reason? A not so subtle headline out of China suggesting a bull market is more important than anything is one. Essentially another euphemism for stimulus, again foregoing any genuine fundamental reasons to be buying/chasing. There is the expectation of a 5th fiscal bill in the weeks to come and QE could be ramped even further at the September meeting so…if it ain’t broke..? Low volumes will result in exacerbated moves and data suggesting outflows from money markets suggests some of that sidelined cash is coming in to fill that summer vacuum. Put it all together and indices are looking to carry on from last week’s momentum.

“Roaring Back..” Those are Donald Trump’s words in regards to the economy. Indeed the government reports showed payrolls rose by 4.8m in June after an upwardly revised 2.7m gain in May. Markets responded with applause. The troubling thing though, is the market was coming off a bit first thing in the morning after Florida’s COVID numbers hit. It reminded investors that states making up half of the US population have retracted or rescinded their reopening plans. Unless corona slows, it may be hard to see improvements from here. Especially that jobless claims continue to rise, which seems to have been ignored. Further, Larry Kudlow’s words  “we are very unhappy with China” portend a worrisome set of circumstances ahead. If history is any indication, the S&P should go up anywhere between 15-22% this quarter, following its biggest quarterly gains since 1950. However, with dark clouds on the horizon, it’s up for debate. Either way, for today it seems US investors aren’t going to let anything ruin their long holiday weekend.  

New Quarter, Same Themes… H1 is in the books, and with a long holiday weekend approaching for many, the subsequent light volumes are making it feel more like a halftime pause then a definitive start to H2. That’s also partially because the storylines that have kept the S&P relatively rangebound over the last month haven’t suddenly changed of course. The eternal struggle between hope (PFE +4.5%, BNTX +7.5% on vaccine optimism) and fear (virus cases growing in 30 states) drags on, with the former getting an extra boost these days in the form of “whatever it takes.” Still with every sign of re-opening rollback making a little dent in investor sentiment, it may not be long before the virus realities pile up to cloud out even the sunniest of outlooks…the chart below of Houston restaurant reservations sure is a funny-looking “V”

It Was the Best of Times… – After the worst of times; surely it’s been a tale of two cities quarters. For the S&P, the last 3 months have been the best in 22 years but it’s hardly felt that way for most; context is key! We know what happened to precipitate this, but it’s nothing a healthy dose of hope, optimism and more than $4 trillion couldn’t cure. Today reverted to a pattern we’ve become accustomed to over the last few months – growth over value with tech reigning supreme. Micron (MU +4%) gave semis a boost on +ve earnings news (people might not be going places but their data is) and Conagra (CAG +4.9%) did the same but these sectors have been the COVID ‘winners’, so not something that should massively influence market sentiment as we continue down a 2-speed economy. Boeing (BA -6.1%) gave Industrials a boost yesterday; after losing a key customer, it’s doing the opposite today.

Rough way to head into the weekend – After yesterday’s gain into the close left traders scratching their heads for a reason, markets today are actually focusing on the negative headlines that seem to be all over the place.  Virus spikes have forced the reopen thesis to be dialed back (Texas and Florida have slightly rolled back some policies), Nike’s (NKE -6.1%) earnings surprised most, and the Fed asserted more control over Banks and their capital.  Lastly, a member of the FANG gang (FB -7.3%) is seeing customers suspend ad purchases on their platform on misconduct policing.  All S&P sectors are in the Red, and the index has tested its 200 day moving average (3020) three times today. With equities trading lower, safe assets like UST’s and gold are outperforming.  Later in the session, the Russell rebalance occurs on the close, adding to the uptick in volatility. 

Composed – After yesterday’s profit taking knocked stocks lower across the board, equities have been battling the unchanged line all day. The themes driving the narrative are still there (both bull and bear), but for now its only the virus case increases in Texas and Arizona (California data due later) that are somewhat new. At 3058, the S&P is closer to the low end of its 3000-3150 trading range, and the spike in cases does not seem to be enough to force traders to de-risk. Banks (see below) are the outperformers, while Homebuilders are lagging after KB Homes (KBH -12%) provided weaker than expected order data. Homebuilders have been a beneficiary of the reopen trade, and that sector is +45% QTD.

Unease on Display… After yesterday’s seemingly optimistic approach to rising virus cases fizzled into the close, the real sense of worry underlying the market is on display front and center today. The latest virus headlines have delivered a fresh dose of reality too heavy to shrug off, with the situation continuing to worsen in Texas / Florida / California and NY / NJ / CT completing the karmic circle by announcing a mandatory quarantine for visitors from higher risk states. Indices attempted to rally off the low midday but are on their way back down again as sellers continue to puke out Value / reopening names (JETS -5.9%, RCL -12%, BKX -4.7%) and with FANG opting not to ride to the rescue today.

Wrong Week (Months) to Quit Sniffing Glue…With that little political misunderstanding out of the way (See: Peter Navarro), risk-assets resumed their price appreciation today, balancing hopes of continued reopening on the economic trajectory, with  new home sales surge (but  disappointing existing home sales) and concerns over new US COVID-19 case growth. Though it is worth noting that market participants seem to only care if hospitalization rates actually increase. Nevertheless, equities are higher yet again led by Cyclical/High Beta/ Value names. However, one place to keep watch? USD. The easing is pleasing to many, but not all.. Clearly there will always be second-derivatives of any USD move, some market friendly, some less so. The culmination of all of these things TBD by next week’s month and quarter end. Duh duh duhhhh….

Summer is Officially Here… and it’s trading like it too. Expiry is in the rearview mirror, meaning equities should be free to trade with fewer constraints, but once again a lack of new news has resulted in a lack of conviction that saw the S&P get off to a slow start the week. Indices are now attempting to push higher midday on back of the tech mega-caps: Apple (AAPL +2.2%) is leading the charge as its Worldwide Developers Conference kicks off… given Apple’s store re-closing announcement on Friday, it’s a fitting illustration of investors trying to shrug off 2nd wave fears in the name of sticking with what’s worked

Witching for the Weekend… It’s been a busy week of headlines but none have really packed enough punch to point to whether stocks’ next big move will be up or down (or spark a pickup in volumes the last few days). Regardless quad-witching is the story of today, with quarterly expiry meaning it’s not worth reading too much into today’s trading action as a gauge of sentiment. Still, pesky 2nd wave fears continue to pop up, with word Apple (AAPL -1.0%) will be re-closing some stores in states with growing virus cases sending indices into the red within the last 2 hours.