"Park Avenue Leads to... Skid Row." Don't bother looking at the street grid of New York City. Physically, Park Avenue splinters at 14th Street into Broadway, and what eventually becomes The Bowery. That said, I think we do understand what Dave "Snake" Sabo and Rachel Bolan were getting at when they penned these lyrics back in 1989. America's most underrated heavy metal band might have been referring to a certain "Youth Gone Wild", trying to figure out just who they were supposed to be. They could have been just as accurately writing about these financial markets. Right now. Just who, or what are these markets supposed to do?
Twenty four hours ago, I wrote about markets that for the most part had traded higher, but upon inspection, really failed to pass muster. This morning, I must write to you about what looks to the naked eye to be a failed rally. The S&P 500 barely hung on to small gains, while the Nasdaq Composite and Nasdaq 100 painted the tape red. Markets opened higher, as the appearance of a European Union finally getting their act together put a bid under the euro. This obviously turns the pressure on... for the U.S. dollar. That's a good thing if one owns something priced in dollars, such as gold, silver, or oil. Energy stocks jumped (literally) for joy. Traders then turned on equities with about two hours to go in the regular session. Trading volume increased throughout the afternoon. This kind of action actually creates a nasty pattern, except, and this is a big but... equities turned again, to the upside with just 15 minutes left until the final bells rang. Pencils down!! Confused? You probably should be, and you probably will not know what to make of all of this until our legislators negotiate a fiscal package that everyone is willing to agree upon.
"If You'll Just Come With Me...
... You'll See The Beauty of Tuesday Afternoon." Any Moody Blues fans out there? Justin Hayward wrote the song in 1967. Some of you are glad that I have changed the tune in your head. Some of you probably not. Tuesday afternoon had gone wild. That much is true, but there was an undeniable beauty within, not visible at headline level. Has Sarge simply lost it? Thirty something years ago, friend. Hasn't slowed him yet.
Interesting, no doubt it was that on a day that the Nasdaq's most closely watched indices sold off, that winners there beat losers by a rough 9 to 5 (no Dolly Parton reference, but you can change the tune in your head again if you prefer), while advancing volume crushed declining volume by more than two to one. Trading volume was heavier for a change. So, why were these indices lower? Because the mega-caps sold off, and that where the money (uhm, I mean the indices are) is. Amazon (AMZN) , Apple (AAPL) , Alphabet (GOOGL) , Microsoft (MSFT) , and Tesla (TSLA) all gave back a chunk, but certainly not all of Monday's run for the roses. (By the way, MSFT and TSLA report this afternoon.) Information Technology was indeed the weakest sector, and software was the weakest industry within the sector. Semiconductors, nor internet type names (Communications Services sector) offered much protection. That protection could be found beyond energy, in the Industrials, Materials and Financials, as that dollar softened.
One more fun fact. I find it interesting, and almost ironic, that during the one reporting period, perhaps in my life where quarterly earnings matter far less than they ever have before, basically because expectations are so awful, and everyone now has cause to "kitchen sink" anything they were afraid to come forward with, earnings are broadly beating consensus view. I know. It's early, only 10% of the S&P 500 has even gone to the tape at this point, but what has been reported is running about 6% above what we on Wall Street were looking for. Food for thought.
Equity index futures have been stumbling around in the red ever since I woke up on Wednesday. I'll admit that I did not even set foot in my office until almost 4 am, which is late for me. Kind of liked sleeping late though. May experiment with that. Globally, stocks have been soft on Wednesday as well. What gives? Tuesday's second half weakness did reveal some willingness across the asset manager class to take profits here. There is that, and it is probably fair judgment.
President Trump held a press conference on Tuesday evening to discuss where the nation is as we "progress" through this public health crisis. Really, it was one of his better, less contentious press conferences. The president did however acknowledge that the situation "will probably, unfortunately get worse before it gets better." While I think most of us prefer such frank talk over bravado, how the algorithms that control price discovery see this we will see when we hear bells this morning.
Lastly, and this is breaking news... it appears that the U.S. has asked China to close that nation's consulate in Houston, Texas, and do so in a limited time frame. Neither the U.S. nor China has at the time of this writing offered an explanation for the action, but as the story develops, markets will take note. This is either an issue or it is not. The most notable move could be one of support for the U.S. dollar and for U.S. Treasury securities. That could have the compound impact of reversing what worked best on Tuesday.
The truth is that these markets are at a crossroads. The markets are really in the hands of Washington right now, and Washington is in the hands of the virus. Legal protection for businesses trying to resume operations. Funding, or not for state and local governments. Funding for schools, for testing, for vaccines. Tax credits for businesses forced to increase capital expenditure in order to ensure safe workplaces. Tax credits for headcount retention. Payroll tax cuts, or not. Flexibility in how funds are spent. There's a lot here, and more. The left, the right, and the administration all differ in opinion. There are at least three viewpoints on many of these issues. Most importantly, and probably the headline maker will be the $600 per week federal stipend that has been added to state level jobless benefits. Extend, taper, or halt. Somebody ends up blaming somebody for something, either now or down the road. While algorithms watch.
Economics (All Times Eastern)
08:30 - FHFA House Price Index (May): Expecting 0.4% m/m, Last 0.2% m/m.
10:00 - Existing Home Sales (June): Expecting 4.79M, Last 3.91M SAAR.
10:30 - Oil Inventories (Weekly): Last -7.493M.
10:30 - Gasoline Stocks (Weekly): Last -3.147M.
13:00 - Twenty Year Bond Auction: $17B.
The Fed (All Times Eastern)
Federal Reserve Blackout Period.
Today's Earnings Highlights (Consensus EPS Expectations)