More lucky than smart.
The Atlantic Ocean. Central Florida. I forget how old I was. I was an adult. I have always been an excellent swimmer. Never really cared about just how far out I was, as long as I could still see the beach. Sometimes you run into sea creatures that you do not normally see when restricted closely to the shore line. Sometimes, one knows when one is pushing one's luck.
This was not really one of those crazy days. I did not have to wait for a large swell to see the beach. Then it hit me, square in the gut. Driftwood? Just one thing. Where's the wood? Whatever hit me must have been alive, because there was nothing floating on the surface.
Only one other individual, a surfer was even visible, and that guy was making a beeline for the shore. Uh, oh. I said to myself. OK, you're overreacting, but let's play it safe. and work our way back toward the sand.
It was not until I was waist deep, when the lemon shark (or maybe a different lemon shark) came back, this time clearly visible and took another swipe at me. Big enough fish, though I think I was larger. I was knocked off of my feet violently. However, I was not bitten. Key to the story.
Things are different now, at least across financial markets. The waves still hide the severity of lurking danger, and perhaps how closely packed together they might be, but you do know that these market-impacting factors are there. Some good, many dangerous. All waiting to be noticed by market-moving algorithms that will outsize importance for a day, a week, a month, or a quarter.
Investors try to stay the course, adding at discounted pricing, when those opportunities arise, rebalancing at a predetermined interval. Traders? They really only "get" the bottom or the top by chance. For this crew, recognizing trend, or the wave itself, is key, and the job at hand is capturing the greatest slice of that swell possible without forcing judgement too close to either that peak, nor that trough.
Risk increases at turning points. We never go for that last dollar. Take only what the market gives easily.
Headline U.S. equity indices moved higher on Monday. And there were certainly at least a couple of quite overt forces at work behind the swelling waves.
The federal government would send another $472 million the way of Moderna (MRNA) as that firm takes its mRNA-1273 vaccine candidate that will target Covid-19 into a 30,000-subject Phase 3 clinical trial.
This put a bid under biotechs in general, while the broader market seemed to act ahead of a fiscal support plan that was to be released by Senate Republicans on Monday evening. That anticipation, in turn, eased U.S. dollar exchange rates, and at least at the headline level, renewed enthusiasm for certain tech stocks, as well as the materials (miners) sector.
Gold took off, hit record-breaking prices during the regular session, and broke those records overnight prior to selling off a bit through the wee hours. All ahead of the FOMC policy meeting that kicks off Tuesday, and culminates Wednesday.
The tech sector raced back to the top of the market's performance tables. For Monday, nine of 11 sectors finished in the green. Interestingly, semiconductors were hot. Hot as heck, as if the "all clear" sounded, which it has not.
The Philadelphia Semiconductor soared more than 3.2%, while the Dow Jones U.S. Semiconductor Index moved just less than 2% higher, all while Advanced Micro Devices (AMD) finally took a day off ahead of reporting later today, and Intel (INTC) took another 2% loss (closing near the low). All hail Taiwan Semiconductor (TSM) , industry foundry champion.
Just fooling around with semiconductor equipment stocks charts, both Lam Research (LRCX) and KLA Corp. (KLAC) appear to have found recent support at their 50-day simple moving averages. Both are former Sarge faves. Neither appears unreasonably valued.
The broader market, however, once one walked away from the headlines, was positive still, but not enthusiastically so. Trading volume edged higher at both of New York's primary exchanges, but remained well below closely watched moving averages in aggregate for member firms of both the S&P 500 as well as the Nasdaq Composite. Winners beat losers by less than two to one at both exchanges, while advancing volume just barely beat out declining volume at the NYSE.
Anyone who has ever purchased anything expensive knows the routine. One's first bid is meant to shock the seller. Purposefully low and probably unrealistic, the attempt is that if there is no competition on the bid side, to put the offer side (seller) on the defensive... to reset the seller's expectations. The differences would be that there is usually not a deadline, and there is usually someplace else to go for what one is looking for. These factors do not apply.
Senate Republicans entered into the arena with a next phase fiscal support plan worth roughly $1 trillion that is as unrealistically low, as is the $3.4 trillion next phase plan passed by House Democrats in May unrealistically high. At least the Dems were early. Now, the wrangling begins in earnest.
The Senate plan includes no additional funds for state or local governments. Both sides seem to agree on a second round of helicopter money. The Senate would like to taper the federal stipend to state level jobless benefits over time to 70% of pre-pandemic income, while the House would like to extend the current plan through year's end. Oh, and the two sides are miles apart on what they are willing to spend to get schools reopened.
These negotiations, more so than the state of tension between the administrations in Washington and Beijing, and more so than earnings season, will control short-term financial market performance.
Oh, and there's one more thing.
The committee goes into session this day. The FOMC. A lot of policy change expected? Uhm, no. Still, the Fed Chair, Jerome Powell, who is the handyman, the one who seems to be able to both repair the roof, keep the hot water running and replace the broken fence (all after cleaning up all of the junk on your computer) must sound confident.
Not confident that the economy might keep moving up the right side of a "V-shaped" recovery. We all know that this ship has sailed. The Chair must sound as if the committee cannot be taken by surprise and can move comfortably to address any unforeseen (or plainly seen coming) difficulty over the next six months to a year, regardless of who occupies the White House.
There will certainly be questions raised, and there may be commentary returned, covering the concept of yield-curve control. Though the concept is not conducive to free-market pricing, there is precedent, and this tool always appears more attractive as fiscal crisis looms.
World War II would be the last time the U.S. went that route, but what the Fed is doing now, really is not all that far away from partial implementation. Already the Bank of Japan (2016), and the Reserve Bank of Australia (2020) are ahead of the Fed on taking such steps. Am I in favor? Certainly not in theory.
How scared are we? That's what this will all come down to.
Just Some Thoughts
-- As the NBA and NHL have moved their respective sports leagues into "bubble" type concepts ahead of restarting suspended seasons, Major League Baseball went in a different direction. The teams are traveling and already just a few games into the new season, games are being postponed as teams deal with the reality of this pandemic. I know quite a few readers are Disney (DIS) shareholders. Be aware that this name is a sports-related risk, as is Fox Corp (FOXA) . Might be a good time to work on reducing net basis if committed to either one of these names.
- Heads up. Facebook (FB) has been forced to move that firm's quarterly earnings release from this Wednesday (tomorrow) afternoon to Thursday afternoon. This comes due to Congress changing dates for this week's House Judiciary Antitrust Subcommittee hearing due the death of Georgia congressman John Lewis, and not due to anything going on at Facebook.
- Starbucks (SBUX) reports this evening. I still have not made up my mind. We understand that this company has its issues in a restricted economy where far from everyone is fully employed. I don't trust the name for investment. I might for a trade. Two key factors tonight? Performance across China, and what the shares do today around the 50-day simple moving average. Take a look.
To go anywhere, the shares will have to go through the 200-day SMA as well. I am thinking better to wait for a "golden cross." Again, I have never loved their coffee.
Economics (All Times Eastern)
08:55 - Redbook (Weekly): Expecting -7.8% y/y.
08:30 - Case-Shiller HPI (May): Expecting 4.1% y/y, Last 4.0% y/y.
08:30 - Consumer Confidence (July): Expecting 94.6, Last 98.1.
10:00 - Richmond Fed Manufacturing Index (July): Expecting 5, Last 0.
16:30 - API Oil Inventories (Weekly): Last +7.544M.
The Fed (All Times Eastern)
Federal Reserve Blackout Period.