In Like A Lion, Out like A Lion…This morning it seemed as though all of the action for the week had already taken place. Never count your chickens or your options. Today’s volatility has continued this week’s trend as megacap tech has now led markets lower for the sixth day out of the last seven. The S&P tech sector is currently subtracting 9 points from the index (without them it would be green) and the Nasdaq is about to close out its worst day since March. All of the maj favorites are down over 1% with Apple and Amazon down another 2% today. Ironically, things ended where they began —with Softbank. Softbank reported mid-morning that it might change its options strategy (now that the world knows it). $9bn in losses could do that to a fund. In the meantime, the dollar has seen a small recovery on the day after inflation data and materials and industrials aren’t feeling a thing. This week began with a bang and is now finishing with a whimper as we all go off to lick some wounds. Our charts team notes however, that the 50-dma are holding– for now. (let us know if you want to see their piece).

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.

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.

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.

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!

National Watermelon Day and Other Essentials….Despite the notable drop in volumes to start the hottest month of the year, the FANG work horses have been at it again today, pushing the Nasdaq to a fresh record (chart below). However, it’s not only Apple (at an all-time high) and Microsoft (+4.8%) doing work today. A handful of other software and tech helpers have stepped in to take a turn with the baton. Qualcomm (+3.7%), Zoom (+6%), Upwork (+9.3%) and Shopify (+6.2%) are all adding impact thanks to a handful of decent earnings and a friendly upgrade. Even small-caps have shown some life (chart below). However, it won’t take much this week to roil a market that remains at levels that feel out of touch with reality. Investors will be watching Booking, Hyatt, Sabre and Norwegian’s latest trends when they report later this week (as well as Marriott and RCL next week). Further, with jobless claims remaining high and job openings stalled, NFP’s will be hard pressed to maintain the narrative the economy is improving. This is not to mention the risk of renewed lockdowns, political posturing and the potential loss of TikTok (cue millions of 12-15 and 40-50 year olds marching on Washington in a coordinated dance routine).

New Week, Who Knew…After last week’s minor stumble whence the S&P ended down 50bps (ish), US indices reinstated the move higher today, erasing last week’s move entirely (thus far). Aside from some earnings, there is no clear reason for today’s chosen path, especially since nothing has really changed. China tensions are still looming and rising coronavirus infections (Oz, China, HK) are in the headlines, giving the doves some added expectations for the Fed’s message later this week. Also, the $1T stimulus package is still being held up in lack of communication land, though Kudlow has already mentioned a $1200 check and reducing the unemployment bonus down to $200 from $600. The main support for today’s strength is tech, which is back in investor’s good graces. Apple is +2%, despite being removed from JP Morgan’s focus list, followed closely by it conglomerate companions – F, A, N and G. As mentioned, we have The Fed this week, as well as China PMI and US Q2 GDP. Not to mention, a cool 167 S&P names reporting just in case you need something to do.

The Weak Week that Wasn’t…Bit of a stumble the last few days (how dare you, equities!) and we would argue it’s more or less meaningless in the scheme. US indices have continued to slide lower today as China tensions are now garnering attention again, jobs numbers are erratic (if not underwhelming), and some of the most beloved tech blue chips (Amazon, Microsoft and to a lesser extent, Intel) got a little smack on their bottoms. However, Mr. Powell is holding a press conference next week and he has every reason in the world to lean overly dovish. Further, there has been a good deal of chatter around how the ‘next’ US stimulus plan is struggling to cross the line. However, no parties want blood on their hands ahead of an election, thus more stimulus will be forthcoming – talk is now August. To that end, an S&P week -60-70bps isn’t really a weak at all (spelling intended).

“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.  

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….