What a difference a day makes. At first equity traders hoped for a rebound. It became apparent overnight Monday into Tuesday that our stock market would open higher. Then we got a little greedy. We hoped that maybe the S&P 500 that had quite notably rebounded off of its 50 day SMA (now 4242) on Monday, might not only fill the gap lower created by the down open on Monday but retake for the index, its 21 day EMA (now 4311). Then we got into our heads that the ground retaken throughout the day might be held if the lows of Friday's weak afternoon (4322) could also be taken. Mission accomplished. The S&P 500 closed on Tuesday at 4323, filling the gap, retaking the 21 day (bringing the swing crowd back onside) and closing above Friday's (last week's) low.
Foreign markets, Europe in particular... as well as U.S. equity index futures followed the cue. Markets have been warm overnight despite some overt selling of the middle to the longer end of the U.S. Treasury yield curve that began in earnest just before 02:30 this morning, that also placed a bid under the U.S. dollar relative to both the yen and the euro. How much has changed for the better from one day to the next? The economic landscape has not changed. There is still strong, but likely past-peak growth. The growth for the most part is less than organic. The virus continues to spread here and abroad. Hospitalizations and deaths are back on the rise as well. Policy moves back into focus. The Fed will be quiet for another week, and will probably try to remain quiet then. There is movement, however, on the fiscal side, and that movement would appear to be leaning toward the negative from an equity perspective. Hmm... you sure about that?
It appears as night melts into day early on Wednesday that Senate Republicans will be able to slow New York Senator (Majority Leader) Chuck Schumer's attempts to push the president's spending plan on the move by blocking debate on the $579 million bipartisan infrastructure buildout. Keep in mind that 60 votes are needed in order to proceed to consider a bill that is still under negotiation, so plainly... there is no material to read or understand, and that is the point made from the right. The argument from the left would be to scrap the independent infrastructure plan, add it to the much larger $3.5T social spending plan, and pass the whole shebang in one bill under reconciliation if possible.
This column does not argue from the right nor the left, or at least it tries not to. This column merely points out that whether or not a massive increase in what will likely be less than properly funded spending will flood an already liquid environment with ever more liquidity. At this point, I think markets are taking their cues from DC, and what appears at the headline level to be a pothole stricken dead end street could actually end up broadening that street into an avenue and clearing the way toward something that equity, debt, and currency markets are having difficulty accurately pricing.
I'm just beginning to see
Now I'm on my way
It doesn't matter to me
Chasing the clouds away
- Justin Hayward (The Moody Blues), 1967
In a complete reversal from Monday's woe, came Tuesday's grace. The Nasdaq Composite roared back 1.6%, while the already mentioned S&P 500 gained 1.5%. Small-cap stocks, that we pointed out here in this column as having been severely oversold, led the marketplace higher on Tuesday as the Russell 2000 and S&P 600 ran 3% and 2.8%, respectively. As sector select SPDR ETFs considered to be cyclical in nature such as the Industrials (XLI) and Financials (XLF) led all 11 S&P sectors into the green, even the more defensive sectors gained ground.
Volume leaders significantly outperforming the broader market for the day included Sarge faves General Electric (GE) , 5.8%... Ford Motor (F) , +4.8%... Wells Fargo (WFC) , +4.2%, and... Honeywell (HON) , +4.1%. Those looking for a darker takeaway from Tuesday's markets could point to the selloff in Bitcoin that impacted the entire cryptocurrency universe. Bitcoin does appear to have retaken the $30K level on Wednesday morning.
Trading volume for NYSE listed names could be considered a negative take-away as well. While winners beat losers by 5 to 1 at the "Big Board" and advancing volume beat declining volume by a robust 10 to 1, however aggregate trading volume for those names decreased from Monday's level. Not so though for Nasdaq listed stocks. Up at Times Square, winners beat losers by a rough 7 to 2, while advancing volume beat declining volume by the same margin as aggregate trading volume increased.
Question. Does this make the rally across the Tech sector and small to mid-cap stocks more meaningful than what we saw for large-cap cyclicals? The answer, at least from me, would be a very non-committal... "probably."
Do It Today
According to the CDC National Center for Health Statistics, life expectancy for Americans took a serious hit in 2020 thanks to the pandemic. COVID has done what AIDS and decades of conflict from Vietnam to Iraq to Afghanistan could not. The virus and broader implications associated with both mandated and social response to the virus has wrought what turned out for the year to be an average 1.5 year reduction in U.S. life expectancy.
From 2019 to 2020, the average American female saw her life expectancy decrease from 81.4 years to 80.2, while the average American male witnessed his expected time on earth decrease from 76.3 years to just 74.5. Ouch. The average decline is indeed the largest one year drop since World War II. The greatest negative impact demographically hit males of African descent the hardest. Black males saw their life expectancy decrease from 71.3 years in 2019 to just 68 years in 2020.
What does this do to a broader economy? How does this impact both productivity and/or consumption? How long will life expectancy appear to be compressed? How do we reverse this damage? I don't know. I just know we don't need to see a new variant of this virus, capable of doing an end run around existing vaccines before a much higher percentage of the population seeks protection. That was 2020. Protection since early spring 2021 has been a matter of choice, and many have chosen against it while around the globe vaccines remain unfortunately scarce in many areas. Hence, mutation.
On that note, a lab study has been published at preprint server "bioRxiv" authored by seven scientists (not yet peer reviewed) that shows that the one shot Johnson & Johnson (JNJ) jab produced low levels of antibodies capable of neutralizing the "Delta" variant than the two messenger RNA vaccines created by Moderna (MRNA) and Pfizer (PFE) /BioNTech (BNTX) currently in U.S. circulation.
To be clear, immune response to any virus is broader than solely antibody response, but this could be important, and in my (I am just a smart kid from Queens, not an expert in anything) amateur opinion, a reason to turn the one shot jab into a two shot vaccine just like the rest. At least for now, until better targeted boosters are available. JNJ reports this morning.
1) Nvidia (NVDA) had a tough day in the wake of the 4 for 1 split as cryptocurrency demand appears to have recently waned. On Tuesday, I took advantage and started to rebuild my long position that I got out of a week earlier. I am currently 1/8 of the way back in. The shares found support above the adjusted 50 day SMA, but fell short of retaking its adjusted 21 day EMA for a third consecutive day.
2) Netflix (NFLX) reported rather disappointing second quarter results and guidance on Tuesday night. Perhaps more disappointing than lower than expected profitability, and much lower than expected forward looking guidance for streaming paid net additions for the current quarter, was the startlingly negative free cash flow for the past quarter, well below expectations, and way, way below the year ago performance. My bear put spread remains in place for now, as do my sales of puts with a strike well below the last sale. As long as the shares trade below $532.50 (tight squeeze?) and above $465 (a cinch), I will probably unwind this position today.
3) Chipotle Mexican Grill (CMG) delivered in a big way on Tuesday night, including the delicious burritos in addition to spectacular financial performance. That said, your pal pulled the trigger on a small short as the shares spiked overnight in response. I have not yet added, as that orange ball in the East just started to erase the man in the darkened window. Right now, I am on the hook at $1,645, and I see a last sale of $1,660. I will be trading this pre-opening with the intention of being flat before the bell chimes at 11 Wall Street. Rock on.
Economics (All Times Eastern)
10:30 - Oil Inventories (Weekly): Last -7.897M.
10:30 - Gasoline Stocks (Weekly): Last +1.039M.
13:00 - Twenty Year Bond Auction: $24B.
The Fed (All Times Eastern)
Fed Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)