Don't look now, but equity markets have put together a bona fide winning streak. It was just last Thursday, less than one week ago that the S&P 500 tested its 50 day SMA, that the Nasdaq Composite not only tested that line, but experienced an intraday piercing of this key line in the sand. Both major large-cap indices would pass those tests, showing where portfolio managers would make a stand, but also retook, within a day or so, their respective 21 day EMAs, bringing in some momentum as swing traders jumped back on board.
The wiggle, or bout with doubt if you will, came by virtue of last Wednesday's FOMC Minutes, or three week old notes of what members of the Fed's monetary policy setting committee had discussed at their prior meeting. In that meeting, there had been some signaling that a tapering of asset purchases could be on the way a little sooner than most had thought and beyond that, perhaps a lift in short-term interest rates, impacting the entire yield curve.
For that matter the US 10 Year Note paid as little as 1.22% last Thursday, the same day that the two major equity indices tested their lows, and paid as much as 1.30% on Tuesday (yesterday), so one cannot say that the financial marketplace is completely disrespecting or indifferent to what Fed Chair Jerome Powell may signal in his virtual address this Friday. Thirty Year Bond yields have moved from 1.85 % to 1.92% over that same timeframe as well. In fact, everything from the Two Year Note on out, has suffered some kind of selling pressure over the past four days.
How interesting is it then, that for a second consecutive day of what is now a four day winning streak for an S&P 500 that hit an intraday all time high on Tuesday, that the index showed real stalling late in that same day? How interesting is it then that cyclical sectors, led by Energy took places one through five for the day (a second day in a row), as small-caps (the Russell 2000) and the Dow Transports gained each for a third day in a row, thus suggesting more faith in economic growth than one may have expected, but that the CBOE Volatility Index showed an increase on Tuesday after two days of steep declines from monthly highs?
How interesting is it then, that the Nasdaq Composite closed above the 15,000 mark for the very first time with both Apple (AAPL) , and Microsoft (MSFT) down for the day, and Tesla (TSLA) underperforming the index? Yes, I saw Amazon (AMZN) and Alphabet (GOOGL) . That only serves to show, I think, a fracture in capital flow. There has been a risk-on feel for most of the past two days, but there was at least on Tuesday, a real feel of caution in the air.
Winners more than doubled losers across NYSE listed names, as advancing volume crushed declining volume by more than 4 to 1. This makes sense as Materials, Financials, and Industrials showed some life, joining Energy in the green. Winners also beat losers for Nasdaq listed names by nearly two to one, as advancing volume bested declining volume by more than three to one. This also makes sense as small to mid-caps did well for the day. The fact that the Composite outperformed the 100 confirms that action for us.
Even More Interesting...
Perhaps the most interesting take-away from Tuesday's trading session (and I guess you have to be a real numbers nerd to see it) is that aggregate trading volume increased some 11% on Tuesday from Monday for NYSE listed names, while aggregate trading volume remained very close to unchanged from one day to the next for Nasdaq listed names.
This while aggregate trading volume for S&P 500 subordinate names increased just 2.6% day over day, and aggregate trading volume decreased 2.3% day over day for Nasdaq Composite subordinate names... meaning that gains made in trading volumes (or capital flows) must have been more concentrated in names not subordinate to either of our two major large cap indices... despite the fact that every name in the Dow Transports is also subordinate elsewhere, but aggregate trading volume attributable to Dow Transport names increased 13% day over day.
What does it mean? I think it means (and it all can change in a minute) that there is a growing belief that the new infection curve of the Delta variant of the SARS-CoV-2 virus may be rounding, or cresting, just as the FDA gives full approval to the Pfizer (PFE) /BioNTech (BNTX) jab, allowing, or making it easier for businesses to mandate vaccination compliance in order to participate.
There is probably also a belief that as we move into September that as recipients of federal weekly jobless benefits see those benefits expire that labor market supply starts to normalize. This is beyond key to the success of smaller and mid-sized businesses. Check this out. As labor seeks out employment that was already seeking labor, from September on through the end of the year, those of us that watch the economy will likely see the unemployment rate soar, even as the employment to population ratio does the same. Now, that's interesting. Sorry for the roundabout journey, but why not smell the rose? Oh, by the way... increased supplies of labor will suppress wage growth, which in turn will place a cap on consumer level inflation, all while more people working 30 or 40 hours a week (not hanging out on the internet) will also suppress discretionary demand.
What Is Not Priced In (Two Way Risk)
1) The greatest risk to both the economy and subsequently the marketplace remains the awful potential for a children's pandemic as schools in most states reopen next week.
2) A blunt Jerome Powell. Markets have priced in and accepted a tapering of asset purchases that starts with a gentle shove in December. Remembering that the FOMC will bear a much more hawkish complexion in 2022, anything more aggressive than that will rattle more than a few cages.
3) Fiscal Policy. Markets, I believe have priced in the $1 trillion ($550 billion in new money) infrastructure bill, but remain unsure if the $3.5 trillion budget resolution should be priced in, or even how to go about it, and to what extent. There was some dealmaking on Tuesday that put off any vote on either package into late September. Basically, right now, while the reconciliation process has been unlocked for when (if) this budget framework gets back to the Senate as a bill, the two warring factions of the Democratic party within the House (moderates vs extremists) have been awarded veto power over each other.
4) Global and domestic economic impact from the absurd, poorly executed and incredibly sloppy U.S. military withdrawal from Afghanistan where the Taliban appears to be dictating terms to the U.S. president, and that president turns his back and literally scampers off whenever anyone in the media asks any question. We know that this odd behavior is damaging ties with allies. You just have to read any foreign newspaper to understand this. It's how adversaries and client or dependent states react that will matter just as much going forward. Adversaries will try to take advantage of a U.S. not willing to protect those in need, while those in need already dependent upon U.S. protection may have to look elsewhere. The U.S. has to address this, and change the foreign narrative. Basically, this president has to stand there, address the issues and take questions from a potentially hostile media when he screws up, just like every president before him.
Just An Idea...
I know creativity is not your thing, but... Anyone in DC even think of retaking Bagram Air Base, giving Americans and allies trapped inside Afghanistan a second port of exit to try to get to. One with two runways at that? Perhaps inform the Taliban that we will need to be there for as long as we need to be there. Period.
We already know Americans in the country have potential allies in the north. Units of the Afghan Army that have not melted nor surrendered are forming up with rebel forces (the old Northern Alliance) in at least two provinces of the country, and are being led by the former vice president who did not flee with the president. I guess I just can't understand leaving our own behind, leaving our friends behind and leaving valuable equipment undamaged. I guess I just can't understand not evacuating vulnerable persons while still in control. No, I do not understand. I sure am angry though. I think we all should be.
Economics (All Times Eastern)
08:30 - Durable Goods Orders (July): Expecting -0.2% m/m, Last 0.8% m/m.
08:30 - ex-Transportation (July): Expecting 0.4% m/m, Last 0.3% m/m.
08:30 - ex-Defense (July): Expecting 0.3% m/m, Last 1.0% m/m.
08:30 - Core Capital Goods (July): Expecting 0.5% m/m, Last 0.5% m/m.
10:30 - Oil Inventories (Weekly): Last -3.234M.
10:30 - Gasoline Stocks (Weekly): Last -696K.
The Fed (All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (DKS) (2.75)