Aftershock… Nothing like a gut check before a long weekend. Markets appeared to have steadied after yesterday’s Tech-led turbulence was explained away as end of summer profit taking / a clearing out of “frothiness,” and all 3 major indices opened in the green following a headline beat on August non-farm payrolls (more on that below). But a wake-up call as violent as yesterday’s isn’t easy to shrug off, and a similar “sell the winners” stampede has dragged stocks lower through the morning. Equities have attempted to steady themselves after the Nasdaq bounced off its 50-DMA and are off their lows heading into the afternoon, with cyclical/value sectors like Banks, Autos, and Cap Goods all in the green once again. Still it’s ugly out there once-sizzling Media/Software/Tech crew, which will keep a lid on any attempted S&P turnaround unless sentiment really shifts into the close. The word perspective is being thrown around to remind that despite the optically horrific charts, it’s too early to call this a true trend reversal (sorry Value), but still the weekend can’t come quickly enough….

Dual Reality Existence Paused….For the past few months, it has felt like Americans were living 2 separate lives. There is the America that has been damaged by a virus, with unemployment and poverty afflicting millions. On the other hand, there is the America that seems to have a boatload of cash, with nascent investors pouring millions into the blue chip companies dictating the digital age. Apple (-6.7%) and its FANG frenemies have been carrying the stock market on their backs. Enter straw. Not saying anything is broken, but today’s NDX move -4.4% thus far led by the aforementioned “cool crowd,” is the pullback logic and stretched valuations have been awaiting. It all makes sense in hindsight of course, as per the below NDX RSI chart and the deviation from the 200-dma. This is the most overbought the Nasdaq has been in some time. The fact of the matter is there is always a pullback at some point, but a pullback doth not mean the end.

Full Speed Ahead… What looked to be another runway ahead day for Tech/momentum has become a bit more muddled, though indices aren’t complaining with the S&P, Dow, and Nasdaq all continuing to push higher into the afternoon. YTD laggards Utilities and Autos are at the top of the sector chart, with the latter rising mid-morning after Autodata showed industry sales topped 15M vehicles in August. Semis are also separating themselves, led by Nvidia (NVDA +4.0%) receiving more applause for their gaming chip rollout, and strong set of earnings from Jack-Daniels maker Brown-Forman (BF/B +11%) has Food/Bev riding high. Tech is the big underperformer thanks to Apple (AAPL -2.3%) taking a breather (otherwise all S&P Tech names green), and Energy is negative as Crude sinks following data showing weaker gasoline demand. The risk-on tone of the session has gotten an extra boost from more positive commentary from Fauci on vaccines, as well as new reports that steroids can significantly reduce mortality rates among severely ill Covid patients. Still the exuberance has felt overdone for a while now and signs of strain are still afoot: VXN (the VIX of NDX) continues to quietly climb higher even as the NDX notches record after record…

To the Moon Alice! – Who knew Ralph Kramden could be so prescient! Clearly he’s referring to the skyrocketing move made by equities, namely large-cap tech as it once again breaks new ground, the Nasdaq 100 reaching an all-time intraday high in the process. A strong ISM manufacturing figure has helped propel some of the cyclical spaces higher while pharma lags in a big way; the House subpoena of Abbvie on broad industry pricing the culprit there. Wal-Mart continues to remake itself and details of its Wal-Mart+ launch. September has traditionally been a difficult month for stocks but during a year when up is down, and left is right, you going to bank on that?

Out with the old – Actually, today’s action is looking just like the 1st day of the month.  Growth (as in Mega Tech) is outperforming Value by 100bps (for SPX), and both Apple (+4.5%) and Tesla (+9.6%) are doing what they did pre-split.  Microsoft is down 1.58% after China announced over the weekend that they could block and foreign buyer of artificial intelligence.  Outside of Tech, Biotech is the best sector (IBB +1.97%) with the group seeing more M&A.  Nestle announced a takeover of Aimmune Therapeutics (AIMT +171%), paying $2.6bn in cash for them.  Energy and Banks have had a tough year, so it shouldn’t be a surprise that they are the laggards today, given the focus on Tech. 

Putting the lipstick on – It’s only one way this week for the S&P, and that is higher.  If the index can close in the green, it will be the 7th day in a row, something that has occurred only 5 times in the last 5 years.  But before the bulls can high five each other, month end is Monday, so some re-positioning could occur today.  The re-opening beneficiaries are outperforming, and that group is large (Beauty, Cruises, Airlines, and Restaurants).  And Mega Tech are currently trending towards the red.  Economic data this morning showed some improvement in Personal Income (+0.4% vs June’s -1.3%), but Spending dropped m/m (+1.9% vs June’s 6.2%), showing that the economy is still working through Covid related issues. 

•Flipping the Script – In a week that was wholly leveraged towards today’s Jackson Hole ‘conference’, even a telegraphed move by Powell and Co seemed to catch the market off guard some. The Fed is adjusting to a world where wage inflation had been persistently sluggish in response to low unemployment and inflation had persistently under shot the 2% target. Covid-19 has only served to tilt these trends in a much more deflationary direction. As a result, the Fed will allow inflation to overshoot the target – if it can – for a potentially prolonged period of time. The USD reacted like a yo-yo but currently resides where it did pre-Powell; it remains below our concern for risk level @ 94. Ultimately the lower for longer regarding rates and continuing accommodating narrative had equities holding gains, while bond traders have been more inclined to sell in the face of a future inflationary environment, TIPS specifically.

Well It WAS Looking Like a Pre-Fed Snoozefest… With futures in a holding pattern pre-market, but it should be no surprise by now to see the S&P and Nasdaq shooting towards another record close on back of the usual Software / Media / Tech workhorses. Salesforce (CRM +27%) is providing a little extra giddy-up for the space after topping off its inclusion in the Dow with a monster earnings beat, but the rest of the Big 5 are throwing their weight around as well. Retail is also in the outperformers mix, buoyed by all-time highs for Home Depot, Lowe’s and Ulta Beauty ( to name a few) as non-S&P names Dicks Sporting Goods (DKS +15%) and Urban Outfitters (URBN +19%) delivered their own impressive results. The mini-rotation to Value at the end of last week seems to be decidedly over, with Energy, Banks, and Industrials all in the red. The 10-year Treasury yield is remains elevated near June levels along with the USD, both rising in anticipation of a bit of inflation ahead as Powell is expected announce in his speech tomorrow morning that the Fed will be more tolerant of inflation above its usual 2% goal in deciding when to raise rates (again, they said they’re “not thinking about thinking about it”).

Reaching For a Record… Don’t roll that B-roll footage of smiling NYSE floor traders just yet…the S&P and Nasdaq are currently poised to notch yet another record closing high but it hasn’t been an easy trek. The optimism that reigned pre-market as investors took a trip Phase One memory lane has been leveled out, as a disappointing August Consumer Confidence data offset some of the enthusiasm born from July Retail Sales data earlier this month. Still, Housing data continues to burn red hot, though Homebuilders (ITB -1.0%) are taking a dip into their impressive ytd gains (ITB +27% ytd). Tech hasn’t been its usual self today as Apple’s pre-split surge has cooled a bit, though Media is being propelled higher after Facebook (FB +3.9%) announced it’s pushing further into the e-commerce world. Otherwise Value isn’t having its best day, apart from Banks which are enjoying the 10-year yield moving back near 0.7%

Supercanes and Asteroids…Neither of these things could move a stock market that’s too big to fail. If asset prices aren’t elevated as per status quo, the weakness is immediately met by Central Bank action, national legislature or Robinhood call buyers of Apple, Amazon, Google, Facebook etc. This morning looked as though we would see a bit of a rotation actually, as Apple turned negative, along with The Nasdaq. However, plasma treatment optimism allowed everybody from Apple and The Nasdaq to The Dow bounce off their lows and hold levels well into the green. Everybody except for Tesla (-1.4%), whose stock is splitting this week, but whose shares are up about 50% since the announcement on August 11th. While the corona treatment optimism has boosted this week’s beginning, the highlight will be the virtual “Jackson Hole” gathering on Thursday and Friday, where the theme this year is “Navigating the Decade Ahead: Implications for Monetary Policy.” Inflation strategy is the name of the game. Also, this week, 2 major storms – Marco and Laura are forming a “supercane” around the Gulf Coast, which, in a year like 2020, could be pivotal.