The first instinct was to defend. Upon seeing the United States Capitol under apparent siege, from hundreds of miles away, my body wanted to dig a uniform out of the closet, and go defend. Of course, that's silly. My second thought was "Where in fact... are the uniforms?" Well, where were they? This summer, as riots tore up many U.S. cities, including Washington, D.C., as those rioters came near, I remember vividly, the image of uniforms lining the steps of the Lincoln Memorial as well as other key federal sites in order to keep the violent fringe from doing too much damage.
Where were those guys? How were those charged with defending the republican (lower-case) process caught so unprepared? Did they not know that 75 million or so people in this country did not trust the results of this past election? Did they not know that a number of fringe groups had openly stated their intention to be in the nation's capital on Jan. 6? Did they not know that there were those among this group that had somehow been led to believe that the president of the U.S. Senate (Vice President of the U.S.) somehow had near totalitarian control over how to count electoral votes? Everyone with a social media account knew how some of these people felt.
I have served as uniformed security at the gubernatorial level, and I have seen more visible uniformed security at events where governors were speaking for the most part to their supporters. The folks who were expected in D.C. on Wednesday were not expected to cheer for Congress. Those who penetrated the Capitol Building must now face legal consequences. Those who stirred violence must be shut down. Those charged with security, who apparently showed up for work on Wednesday as if they were chaperoning a dance at the local junior high school, need to be questioned -- and need to have a darned good explanation for such a lack of preparation or find a new line of work.
Best Outcome Possible
The best possible outcome was what eventually came to pass as Wednesday wore on well beyond darkness. Members of both houses of Congress went back to work, after their place of business had been cleared and secured. The Senate and the House of Representatives overwhelmingly voted to accept the electoral college votes the way they had been certified from Arizona and from Pennsylvania, the only two states actually drawing objection. There was no debate extended across the other 48 states and the District of Columbia. The objection to the electoral votes from Arizona had been raised prior to the entire process, which is normally quietly done, being interrupted by the rioters. It appears that enthusiasm from the right for the political theater of debate dissipated after the awful events that took place. Thank goodness.
Why this was the best possible outcome is quite obvious. While having rioters interrupt the official counting of already certified votes is almost certainly viewed globally as an American embarrassment, the fact that our elected officials, for the most part, came together on the same day and got the job done by early the next morning without breaking is not small potatoes. The world took note as the United States looked broken. The world also saw the U.S. get up, brush itself off, and carry on with the business as usual. That is key.
For his part, President Trump did not encourage violence, but he did address the crowd before it became a riot, and he did at least suggest walking down the street toward the Capitol Building. That has to be seen as unacceptable. The president's social media accounts have been temporarily shuttered. Vice President Mike Pence broke with the president earlier in the day, and may have set himself up for a better day somewhere down the line by doing so. My guess would be that if the Republican Party has a leader, it may now be the outgoing vice president.
For now, it is up to President-Elect Joe Biden to be a, no... to be the unifier. Can he do that? The Dems will have at least two years in control of two of the three branches of the federal government and will almost certainly strengthen their position in the third over time. My guess is that once Joe Biden is inaugurated, that he'll have more support after this than he ever expected from those that fall politically somewhere ranging from the center to the center-right. Moderates are done with this. A quieter era would be most welcome.
Time to fight the virus, not each other.
Markets
Financial markets at first reacted to the prospect of unified government far better than most, certainly far better than I had expected. I had thought the markets to be quite smitten with the very idea of gridlock. Now, markets seem laser focused on looser fiscal policy as a catalyst. That means a weaker U.S. dollar though the greenback seems to have found some overnight support. That means a steeper yield curve.
Investors continue to sell the long end. At zero dark-thirty, the U.S. 10-year note is now yielding 1.05%, with the 30-year bond giving up as much as 1.85% at one point. Gold appears to be trading well off of Wednesday's highs, but crude oil and bitcoin for now seem to have caught persistent bids throughout.
As for equities, Wednesday was a fantastic day, to be honest. Sure, investors did react to the events in Washington at 2 p.m. ET, but not nearly to the degree that might have been expected. The flow of capital moved away from the semiconductors, hardware and software of high technology as we (and others) had previewed 24 hours ago as the state of Georgia went blue. These funds chased more economically sensitive types of stocks, such as the Financial, Materials, Energy, and Industrials sectors.
I see two aspects of Wednesday's trade that stand out to me. One, breadth was simply outstanding. Two, leadership came from smaller businesses. Let me explain.
Down at the New York Stock Exchange, with the Dow 30 up 1.44%, and the Transports up 2.81%, but the S&P 500 just 0.57% higher, winners beat losers by more than 5 to 3, and aggregate trading volume soared well above Tuesday's levels on advancing volume that crushed declining volume by nearly 4 to 1.
Now, let's head up to the Nasdaq Market Site, because this is more important. With the Nasdaq 100 down 1.4%, and the Nasdaq Composite 0.61% lower, basically because the Tech Sector SPDR ETF (XLK) gave up 1.72%, trading volume reached levels not seen in more than a month. With the Nasdaq large-cap indices trading lower, winners beat losers by a rough 12 to 7, as advancing volume came close to doubling declining volume. This was no "down day" up at Times Square. Yes, there was a move out of high tech, and that gets all of the attention, but smaller stocks also populate the Nasdaq. They just don't weigh upon the higher profile indices.
The S&P 400 (mid-caps) ran 3.91%, while small-caps ran even hotter with the Russell 2000 up 3.98% and the S&P 600 trading an incredible 4.77% higher for the session.
Leadership
So is leadership shifting? Some would insist it already has. Among the 11 sector SPDR ETFs, information technology would be the alpha dog for any window going out one year or longer, up to decades. That said, looking over a smaller and more recent time frame, anything encompassing just the past six months or less seems to favor the Materials, Financial, and Energy sectors.
Perhaps even more importantly, as among major equity indices, the Nasdaq Composite has easily outperformed the pack over 12 months, the Russell 2000 has easily outperformed the same pack to include the Nasdaq Composite over the past six months. Interesting to say the least.
Strength Versus Weakness?
Not sure what I see, but check this out. Despite weakness across technology on Wednesday, Roku (ROKU) ran higher for a second consecutive day, as the company revealed that it had added 14 million+ new users in 2020, and that active user accounts now numbered 51.2 million, about a million above expectations and good for year-over-year growth of 55%.
Add to that the fact that both Steven Cahill of Wells Fargo (on Tuesday) and Jeffrey Rand of Deutsche Bank (on Wednesday) had increased their price targets from $275 and $260, respectively, to $414 and $400, respectively.
ROKU appears to be building either a base or a small cup near the top of the chart, while remaining firmly within the confines of a trend-confirming Pitchfork model. What I find interesting is what ROKU does, which is to successfully compete with both Amazon (AMZN) and Alphabet (GOOGL) to replace the cable box with the streaming entertainment aggregator.
ROKU and its competitors carry all of the well-known streaming giants as well as some non-giants. However, ROKU's success does not seem to be trickling down to the streaming industry leader in terms of market-share.
Netflix (NFLX) continues to go nowhere, and closed not just down for a third consecutive day on Wednesday, but roughly 13% below the stock's July high. Remember when the hit show "Friends" left Netflix after being called home to HBO Max by parent company AT&T (T) ? Well, now, Comcast (CMCSA) is doing the same thing with another highly popular show, "The Office," which is being called home to Peacock.
A note penned earlier this week by Rosenblatt's Bernie McTernan states that, "The percentage of respondents (to his firm's recent survey) who are likely to cancel Netflix over the next three months substantially rose with 32% very likely or likely to cancel the service in aggregate, relative to 13% on average in our four prior surveys."
On Wednesday, Netflix closed below the firm's 50-day simple moving average of $502. In premarket trading, the shares have retaken that line. Holding these off-hours gains could not be more important for Netflix. Thursday's trading session is key to the short to medium-term future of this name.
Economics (All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Last 787K.
08:30 - Continuing Jobless Claims (Weekly): Last 5.219M.
08:30 - Balance of Trade (Nov): Expecting $-64.4B, Last $-63.1B.
10:00 - ISM Non-Manufacturing Index (Dec): Expecting 54.5, Last 55.9.
10:30 - Natural Gas Inventories (Weekly): Last -114B cf.
The Fed (All Times Eastern)
09:00 - Speaker: Philadelphia Fed Pres. Patrick Harker.
12:00 - Speaker: St. Louis Fed Pres. James Bullard.
13:00 - Speaker: Chicago Fed Pres. Charles Evans.
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: (AYI) (1.85), (BBBY) (0.21), (CCL) (-1.84), (CAG) (0.73), (STZ) (2.24), (HELE) (3.01), (LW) (0.62), (TPTX) (-0.92), (WBA) (1.04)
After the Close: (DCT) (-0.01), (MU) (0.67), (WDFC) (1.03)
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