Streaks Are Meant To Be Broken… On the heels of the S&P’s first 4-day win streak since February (and a new all-time high for NDQ), it seems today’s “breather” isn’t ruffling too many feathers (especially as indices now head back toward positive territory). After all, a pause seems reasonable given the last 50 days have seen the S&P sprint +37% higher, the best 50-day pace in the index’s history. And history would indicate things might only be getting started: looking at the other largest 50-day rallies, the average S&P return 1-year later +17%.  

ROM THE DESK

We Meet Again… – Hello 3100 S&P! Nice to see you again. I want to say it’s been a while, but it really hasn’t been that long has it??!! Well you know what they say time flies in a global pandemic and ongoing period of social and civil unrest! Tell 3200 I said hello and hope to see it soon too. The prospect of seeing actual friends continues to drive the market higher, as the reopening/positive linearity narrative continues. Add in underweight positioning, FOMO/TINA/CASH (not an acronym) and the desperate search for yield, nothing is getting in the way of this market. Dunkin Donuts (DNKN +2.8%) revealing better MoM comps (ongoing theme for restaurants) and Microchip (MCHP +11.7%) pushing the semis after it not only reveals guidance, but raises it! What a novel concept. The value/cyclical theme has the bull by the horns today though but no clear trend change just yet.

Like the US Postal Service Motto… Neither snow, nor rain, nor COVID, nor China tension, nor riots in the streets will stop this equity rebound from continuing on (or something like that). Rotation is back in play once again, with Autos, Energy, and Transports leading, while FANG weakness has kept the NDQ a from making another leap toward a new ATH (for now). The narrative of the market ignoring the bad to focus on the good is becoming repetitive, but it seems two old-favorite acronyms are now back in style and being mentioned more and more as driving forces behind the market’s rise

Logistics Need Not Apply…Stocks have made their choice and they choose hope (today). US manufacturing rising for the first time in 4 months certainly helps. As does the unprecedented levels of Fed stimulus, record low bond yields and the largest S&P tech names benefitting from the effects of COVID (FANG +1.4% today, Pharma -1.4% on disappointing Gilead remdesivir results). However, stocks are going to face a multitude of uncertainty into the back half of 2020. Sadly, the worst outbreak of social unrest in decades will be one major factor. Quarantine may have loosened a bit, but new curfews are being imposed and the Nation’s Guard is required to stand watch with Trump urging “domination” of protestors. Further, The US election could be frightfully racially charged. Also, the aforementioned protests could very well spark the second wave of coronavirus. Let’s put it this way— The US was already being tested by its first impeachment since 1998, the worst pandemic since 1918 and the toughest economic conditions since the Great Depression (CNN). Now, social unrest is added to that list. And we haven’t even touched China.

Say what? Stocks have been in a defensive stance as markets wait for the 2pm White House press conference on China.  Until a few minutes ago, few knew what Washington was going to do for China’s new security law in Hong Kong.  But it looks like Trump is moving towards some sanctions on Chinese financial institutions, along with some graduate student visa limitations; neither look too impactful.  The S&P 500 continues to trade above 3000 though, and seems to be more focused on the post virus economy than on China trade… for now.  Semiconductors are outperforming thanks to Marvell’s earnings last night, but the broader tape has a defensive tone to it.  Mega Tech, Utilities and Treasuries (10-yr) are higher, versus Banks and Energy.  With the President speaking soon, and the MSCI rebalance on the close, the scope of the trading day can change over the next two hours. 

One Moment in Time…We are saying hello to 12-week highs as the S&P fast approaches 3100 and it feels as if the past 3 months of stock destruction will be in the rearview mirror stat. Looking at the chart below, it would seem the S&P is back on the straight and narrow path to the moon (thank you, Fed’ers). One thing to keep an eye on is the leaderboard today, though. Healthcare, Telecom, Chemicals and Utes at the top half of the screen, XAU up again and volumes pretty eh, don’t exactly scream confidence, but there are definitely other signs of life (see below)…

Like Chumbawamba… The S&P keeps getting knocked back below 3,000 only to get up again. With the headlines on reopening, vaccines, and stimulus all continuing to move in the right direction, it’s felt inevitable the index would recapture its 200-DMA and the psychological milestone, yet the task has proven to be a pesky one. US-China barbs are partially to blame, as well as Tech having gone from poster child to problem child, with NYFANG -1.6% (funny how quick some are to label the sector a “drag” after all it’s done to contribute to the rebound!). Value still enjoying the spotlight suggests optimism around the path of the economy remains – the release of the Fed Beige Book later this afternoon should add some more color to the question as well.

Scissors > Paper – And right now optimism > pessimism. The official kickoff to the summer season has released animal spirits, as equities rip higher from the start. This echoes moves across the globe, with the S&P going above the psychologically important 3k level, which also coincides with the 200dma. This enables us to target the early March “first recovery high” at 3136, about 4.5% from here with 3200 not out of the question – absent any guidance, the trend and charts are your friends (see below). Talk of skyrocketing infections in emerging markets (Chile/Brazil) as well as pockets of waves throughout the US have been nudged aside, worst-case scenarios yet to play out. Instead the focus remains on stimulus, lockdown lenience and vaccines – welcome Novavax to the party!

Summers here – Markets are heading into the long weekend with the traditional defensives outperforming.  Homebuilders are higher by 1.4%, Staples 19bps, and Utilities 36bps, and 10-year Treasuries are hovering around the .66% level.  And that defensive posturing means ytd underperformers (now called Value) are lagging.  Economic data started the long weekend early by taking the day off, but traders had a couple more earnings to check before they disappeared.  Once again, the CV-19 winner/ losers earnings showed, as Foot Locker (FL -12.9%) reported comp sales that fell 42.8% in the quarter.  Top supplier, Nike (-24bps), is not expected to report till mid-June.

Blame it on China… Many are pointing to recent escalation in the ongoing US-China saga for the weaker sentiment today (things are indeed heating up), but all things considered the S&P is still up +3.2% for the week, making this more of a pause on light volumes than a sign of serious concern (of course with China beginning their annual National People’s Congress tonight, that’s subject to change). A long weekend ahead sets up tomorrow’s trading as an barometer for how confident investors are feeling in their positioning… or perhaps a less dramatic, drifty day…